level 2 data

[WhooDoo22]

Hi t2w community! Does anyone in the forum have extensive experience using level 2 data to place trades? It doesn't matter what type of market you have used it for. I simply wish to understand the use and value of level 2 data. Using level 2 data in FOREX would be preferred.
Thank you!

 

[DionysusToast]

Yes - but there is no level 2 in Forex.

In my experience you have 2 types of people that use Level 2 data.

1 - Pure scalpers that scalp the order book - most often on fairly thick markets.
2 - Traders that use level 2 info to confirm/refine trades

In all the cases I have come across, it's been a combination of Level 1 & Level 2 data that people use. The Level 2 data is the order book and the Level 1 data is the trades hitting into that book. It's the combination of those two sets of information that allows you to make a decision.

 

[WhooDoo22]

@ DionysusToast: First things first. Thank you for responding to my post. OK, with that said, I read this web page for information regarding level 1 and level 2 data. Order Book - Description of Level 2 Market Data and Depth of Market

Do you have experience using l1& l2 data for placing trades?
Do you have experience trading FOREX?

Also, I believe that order book is available for certain FOREX brokers such as OANDA. I believe that order book is considered level 2 data right? http://fxtrade.oanda.com/analysis/forex-order-book

Thank you.

 

[DionysusToast]

I use L1/L2 for every trade I place.

The L2 data for Stocks & Futures comes from a centralized exchange or group of exchanges in the case of NASDAQ. For stocks, there are various L2 services but in effect what you see are all bids & offers for the instrument.

With Forex, there is no centralized exchange, there isn't even a group of exchanges as with NASDAQ. With Forex L2 is not possible for this reason. All a broker like Oanda can show you is some of the picture, which in this case is simply the data related to their clients which is probably .00000000001% of the total market.

As such, it's not really going to do you any good using something like this in my opinion.

Your best bet is to subscribe to a Futures data feed and look at the total bid/offer picture for the corresponding Forex Futures markets. So if you want to trade EURUSD, then you look at L2 on the 6E, at least that way you are seeing the whole market and not a tiny subset.