An informational screen which shows, in addition to the current bid and ask price, all market makers and ECNs at different price levels on the bid and ask.
There are 3 distinct levels of expressing share price information commonly called:
Level I information consists of only the real-time mid/bid/offer quotes for a share that is trading i.e. the current best or highest bid price, and the best or lowest ask price. The data access does not disclose which market-makers are bidding or offering stock, and it does not show how many shares they are prepared to trade. This offers them an advantage because clients cannot see how the price is derived or what the overall position of the market is in the stock; Level I users are partly trading blind.
This is the type of quote that most traders get from their broker or by using one of the Web based online quote services. Level I data only provides the current "inside market/quote" Level I does not let you see any limit orders, the total quantity of shares being bid for or which Marker Maker is buying or selling shares of that particular stock. Because of the limited amount of information on market depth provided by Level 1, it is of little use to the serious day trader.
A Level I quote is the most basic available and consists of:
- Quote size
- Last trade
Level II is a step up from the Level I. Level II is the term used to describe actual trades being executed right in front of you. Level II access provides real-time access to the quotations of individual market makers registered in listed securities as well as the offering or bidding lots that they are looking for. This level of access also gives the name of the market maker looking to trade the security. Also, it allows traders to see what market makers are showing the most interest in a security and identify the patterns for each market maker.
Level II data is very useful for day traders because it shows, among other things:
- Who is buying and selling the stock, (if they choose to let you know as they can disguise their intentions by using the MM known as SIZE or they can use an ECN).
- How liquid is the stock at any point in time
- The likely short-term price direction of the stock
- The support and resistance price levels of the stock as determined by who the Ax is in any stock and their position within the Level II bid and ask screens.
There are key differences between Level II in the UK and US, detailed below.
Level III is restricted to Nasdaq member firms (US) who are registered Market Makers and to a number of large brokerage firms (UK). It provides all of the Level II data but, in addition, gives Market Makers the ability to enter or change quotes, execute orders, and send out confirmations of trades. Level III does everything that the other two levels do, plus it allows a particular market maker to go into the system and change his bids and offers and size on the stocks in which he makes a market. A market maker can make those changes at any time, no matter what is quoted on Level I or Level II.
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