what is level 2?

[andrewmooton]

Hi there I was wondering if anyone would be so kind as to explain to me what exactly level 2 is and whats so good about it.

Thanks
Andrew

 

[JTrader]

UK Level 2 data
Recent technology has allowed access to market information that was once available only to the Market Making community and to the Institutional world. The retail customer now has a chance of operating on a more level playing field with the 'professionals'.

Each Level II screen gives you much more information than the traditional Level 1 screens (showing Bid/Offer/Volume etc.). The Level 1 information that most systems provide only show the bare essentials but fails to show how the prices are derived. For an active investor/trader it can be useful to have as much depth of information as possible, which is where Level 2 differs.

Level 2 SEAQ screens are primarily a display screen showing the Market Marker(s) ID in the particular stock and their current bid and offer. Bid, bid size, offer, and offer size data. Level 2 SETS screens show the full order book ( i.e. all outstanding orders to buy and sell shares in the market.)

 

[andrewmooton]

thank you for the reply jtrader.

could you possibly give me an example of how this extra information can be of use?

 

[JTrader]

Hi Andrew

I can only really speak with regard to UK SETS level 2, which I have been a user of when trading BARC, ANL, LLOY etc..

Buy orders appear in the left hand column and sell orders in the right hand column. Orders are electronically executed once buy and sell orders match in price.

This information can be of help in giving peace of mind -often supporting what a real-time chart may be saying. For example, at major support or resistance levels on a chart you are likely to see lots of buy or sell orders grouped together on the level 2 order book that confirm this. Level 2 can therefore be useful in showing you that the market is not about to/unlikely to collapse if you were to make an entry.

If there are twice as many buy orders/volume as sell orders it is logical to assume that the price will rise. If there are double the amount of sell orders/volume it is logical to assume that the price is heading down. What happens on the chart will often confirm this.........But not always..........

I found that Level 2 data can be confusing and often put me off taking a trade, and then the chart unfolded to tell me that I should have taken it. I have seen situations when the sell orders volume is quadruple the buy orders volume. This indicates that the market is heading down and the exact opposite occurs and the price heads up.

For these reasons I found myself moving away from the use of level 2 - and placing much more emphasis on the chart instead - which I now certainly consider more important than level 2.

I am now in the process of moving to forex trading - where a level 2 screen is not available, and all my trading decisions are based on the chart.

HTH

jtrader.

 

[Racer]

Several years ago when Level 2 was not freely available and few knew of its existence apart from MMs then it was of great use, but now with the 'regular punter' having easy acces the MMs have made it much more difficult to read. The book can be made to appear like it is going down.. very easy to do with thinly traded stock, but then it will move the other direction!
Also there are now icebergs and robots...
the tip of large orders, only a small part appears on L2, then when that small trade is filled it is replaced by another small trade

 

[andrewmooton]

so what you are all saying is that its a useless load of old ********?

 

[Trader333]

I trade US Nasdaq stocks and I find Level II invaluable as a tool for reducing risk at entry. Also there are very obvious clues to what is often going on with Icebergs etc. If you were to ask Naz he would also tell you that Level II is essential for success in the way that he trades.


Paul

 

[Racer]

andrewmooton.

I wouldn't say it is useless, I wouldn't trade without it and have had L2 for years!

 

[CityTrader]

I would NOT trade equities without level 2. It's invaluable for SEAQ stocks, and even for SETS & SETS MM - it's virtually a pre requisite of trading.

 

[jaison]

The UK Level 2 screen shows the observer everything that is taking place with a stock in real-time.

It offers you the chance to have all the tools of the market maker. A real level playing field.

With direct access you can place your orders at 7:50 before the market opens. Your order will then be traded first. You can also enter the closing auction. Placing a bid allows you to buy or sell at a discount on the closing price. The bids are then processed at 4:35 as a unitary trade at the lowest selling price.

You can see if the market makers are buying or selling on their own account or simply offsetting the stock back in to the market.

You also get to directly trade with another seller or buyer at the same price with no spread involved.

Basically you can be as clued up as any market maker and, assuming you are as good, can make bags of money. If you trade professionally you will win more often that you lose.

One posting above shows that many have missed the point to Level12 and don't even want to understand. They fail to grasp the value and potential awaiting them.

Realise one thing though, when reading postings on this BB.

The successful trader will tell you the basics, just as I have in this post. But they WON'T tell you how they do it and therefore there is no easy way to riches.

If you are serious about making trading work for you, you need to study.

A market maker is sitting in front of his screen most of the day. So do I. He will know the stock he trades intimately. So do I. He will know the potential for movement and profit. So do I.

I could go on, but the bottom line is that you need to specialise.

Get your account open. Watch, learn and then try a few trades.

I trade one stock, day in day out. I don't leap about looking for that "pot of gold". It's right there in front of me on the screen already. I place my orders and wait for them to be traded. Sometime it takes minutes, other times it takes nearly all day. But when they move they usually do so quickly and you need to be there to press the button with a new order. Some days ten or even twenty large trades are possible.

Direct Access and Level 2 is for the professional. To use it properly you need to be as disciplined as a professional. At your desk by 7:30 working out the opening orders, and still at your desk at 4:30 ready to tidy up for the closing auction, ideally with all positions ending up closed.

Summing up:

The members of this BB that make money don't say much. Anyone that does disclose how and what they trade probably doesn't. I don't need to tell everyone. I have it in my bank account. I know, and that's good enough for me.

Therefore there is no easy way to learn how to make money by trading. You need to put time and diligence in to learning, by watching. Don't think that someone is going to post a "how to make money in 5 minutes" on this board that really works.

Don't open a Direct Access account and try and win with Level 2 unless you are prepared to be professionally minded with a firm commitment to winning.

If you don't take anything else away from this post, remember this:

I now know where the money went that I lost in the past, buying and selling shares. The CFD traders with Direct Access and Level 2 took it! Why pay the market maker his commission when you can keep it yourself?

Be the new kid on the block using the latest technology. The old fogey that want's to trade the old fashioned way will actually pay you to have you buy and sell his stock first as a trader.

 

[Racer]

7:30 to 16:30 jaison?
That's a bit late to start work and early to finish?

Agree with getting to know the stock and the book for it...

 

[andrewmooton]

The UK Level 2 screen shows the observer everything that is taking place with a stock in real-time.

It offers you the chance to have all the tools of the market maker. A real level playing field.

With direct access you can place your orders at 7:50 before the market opens. Your order will then be traded first. You can also enter the closing auction. Placing a bid allows you to buy or sell at a discount on the closing price. The bids are then processed at 4:35 as a unitary trade at the lowest selling price.

You can see if the market makers are buying or selling on their own account or simply offsetting the stock back in to the market.

You also get to directly trade with another seller or buyer at the same price with no spread involved.

Basically you can be as clued up as any market maker and, assuming you are as good, can make bags of money. If you trade professionally you will win more often that you lose.

One posting above shows that many have missed the point to Level12 and don't even want to understand. They fail to grasp the value and potential awaiting them.

Realise one thing though, when reading postings on this BB.

The successful trader will tell you the basics, just as I have in this post. But they WON'T tell you how they do it and therefore there is no easy way to riches.

If you are serious about making trading work for you, you need to study.

A market maker is sitting in front of his screen most of the day. So do I. He will know the stock he trades intimately. So do I. He will know the potential for movement and profit. So do I.

I could go on, but the bottom line is that you need to specialise.

Get your account open. Watch, learn and then try a few trades.

I trade one stock, day in day out. I don't leap about looking for that "pot of gold". It's right there in front of me on the screen already. I place my orders and wait for them to be traded. Sometime it takes minutes, other times it takes nearly all day. But when they move they usually do so quickly and you need to be there to press the button with a new order. Some days ten or even twenty large trades are possible.

Direct Access and Level 2 is for the professional. To use it properly you need to be as disciplined as a professional. At your desk by 7:30 working out the opening orders, and still at your desk at 4:30 ready to tidy up for the closing auction, ideally with all positions ending up closed.

Summing up:

The members of this BB that make money don't say much. Anyone that does disclose how and what they trade probably doesn't. I don't need to tell everyone. I have it in my bank account. I know, and that's good enough for me.

Therefore there is no easy way to learn how to make money by trading. You need to put time and diligence in to learning, by watching. Don't think that someone is going to post a "how to make money in 5 minutes" on this board that really works.

Don't open a Direct Access account and try and win with Level 2 unless you are prepared to be professionally minded with a firm commitment to winning.

If you don't take anything else away from this post, remember this:

I now know where the money went that I lost in the past, buying and selling shares. The CFD traders with Direct Access and Level 2 took it! Why pay the market maker his commission when you can keep it yourself?

Be the new kid on the block using the latest technology. The old fogey that want's to trade the old fashioned way will actually pay you to have you buy and sell his stock first as a trader.

extremely interesting post there jaison.

you sound like someone who really knows his stuff.

I am determined to master level2 and profit from it.

what would you recommend as a good starting point for a newbie who wants to learn?

 

[CityTrader]

Well certainly also get to my desk by 7.30am, and I always try to be at it for the close also. Unfortunately it's the hours in between when I dont seem to have the discipline anymore - getting easily distracted by gym, tennis, golf, lunch.... !

7:30 to 16:30 jaison?
That's a bit late to start work and early to finish?

Agree with getting to know the stock and the book for it...

 

[Trader333]

andrewmooton,

I am determined to master level2 and profit from it.

what would you recommend as a good starting point for a newbie who wants to learn?

This will depend on the instrument that you wish to trade. What are you wishing to trade ?


Paul

 

[jaison]

Let me repeat what I wrote above:

Therefore there is no easy way to learn how to make money by trading. You need to put time and diligence in to learning, by watching. Don't think that someone is going to post a "how to make money in 5 minutes" on this board that really works.

How do you learn to drive?

You get behind the wheel and drive! No book does that for you. Even if you have an instructor, you actually have to drive the car to learn. The coordination comes with practice.

OK you pass your test, what about driving at Brands Hatch?

Again you need to work your way up through the ranks driving each formula in succession.

Direct Market Access and Level 2 use is for the F1 drivers. You may well stay at the back of the grid for most races, but at least when the crunch comes you won't kill yourself driving.

I got in to trouble yesterday. I had big positions and the stock turned on me big-time. I had to trade my way out of trouble FAST.

The F1 drivers with pole position took me for all my profits for the past few months. I have it all back again. However, it wasn't my money I got back, it was F4 driver that lost out to me. A chain reaction all the way down to the small guy who probably lost his shirt yesterday.

Get access to a level 2 screen and spend tens of hours just watching and learning.

You can't be taught this. As another poster, Socrates, pointed out; It's the computer between your ears that is the only reliable instrument to use for trading. It needs to be honed and sharpened with observation.

The truth is no work, no gains. You will also have to lay out some money for the Level 2 feed as well.

 

[Mr. Charts]

Good stuff, jaison.