This is, in a nutshell, how level 2 market data works on the NASDAQ stock exchange. On the right side of the screen, the first seller is willing to sell 1000 shares at 29.36 via the NFSC market maker.
In this example, the first buyer offers to buy 600 shares of Intel at 29.33 via the INCA market maker (Instinet). In addition, the vast majority of level 2 order books on different trading platforms look pretty much the same, so once you learn how to read and analyze level 2 data, you’ll be able to use it on any trading program.Īs you can see in the image below, the list of buyers is on the left side of the screen, and the list of sellers is on the right side. Simply put, a level 2 market depth order book shows the asset’s supply and demand offer in real-time. Level 2 is often perceived as a complex data service however, knowing how to read and understand level 2 trading is actually very straightforward. How Does Level 2 Market Data Work and How to Read Level 2 for Day Trading? Many of these traders will tell you that it’s impossible to day trade without using the level 2 data service. Almost every proprietary trader uses a level 2 order book to analyze the markets and place orders.
Trading with level 2 data is a necessary trading tool for active intraday traders and scalpers. So, for example, when trading assets on a stock exchange, options, or futures contracts (commodities, forex, indices, etc.) – a trader can get access to level 2 data. To be able to use level 2 market data, a trader must have access to assets traded on an exchange. In most cases, level 2 order boxes show around 5-10 best bid and ask prices, though, in some exchanges, you may get access to up to 40 bid and ask prices. Unlike the level 1 order book that shows the last bid prices and ask prices, level 2 shows the complete list of bid and ask the market maker who placed the order, and the quantities (the size of the order). Level 2 market data is an order book that gives retail traders and institutional players a more detailed set of information about the traded asset.
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