Like all other gadgets, Level II can be displayed as a section of the left sidebar or a separate window see the Left Sidebar article for details. In the gadget header you will see the following elements: the symbol selector, the ' clip' icon , the full name of the symbol, the current market price of the selected symbol, and its percentage and absolute change since midnight.
The clip icon brings up a color-and-number selection menu; choosing a color in this menu will link Level II to all thinkorswim components with similar color. Consider linking Level II to a watch list so that clicking through the latter will immediately display the corresponding symbols in Level II. For stocks and options, Level II is a color-coded display of best bid and ask prices from a given set of exchanges.
For futures, since they each trade on a single exchange, Level II displays first several layers of that exchange's book. When you specify the symbol in the symbol selector, you will see the real-time quotes in the working area. The working area is divided into two sets of columns: bid-related to the left and ask-related to the right. In both ask and bid size columns, the numbers represent hundreds of available shares or contracts: for example, 3 in the bid size column means that there are shares or contracts ready to be bought at the respective bid price at the respective exchange.
Since the purpose of Level II is providing you with best bid ask prices, the columns are sorted accordingly. The lowest five to 15 prices where traders are willing to sell an asset and have placed an order to do so. The number of shares, forex lots, or contracts that are available at each of the ask prices. Level II market data provides the additional information needed to trade based on changes that occur in the bids and offers.
Some traders like to look at how many shares are being bid versus how many are being offered, which may indicate which side is more eager or more powerful, and it may predict the short-term direction of the market price. This tactic is combined with watching the recent transactions. If most of the transactions are occurring at the bid price, it means that the price could go down in the short term, whereas if most of the transactions are occurring at the offer, the price could go up.
These methods may also be combined with chart-based strategies. Level II is also known as the "order book" because it shows all orders that have been placed and are waiting to be filled. An order is filled when someone else is willing to transact with someone else at the same price. Level II is also known as " market depth " because it shows the number of contracts available at each of the bid and ask prices.
Market data comes from the exchange that offers the market. Day traders receive the market data via their day-trading brokerage. Level I and II are available for futures and stocks. Some forex brokers also offer Level II market data, although not all do.
Level II costs more than Level I for stocks and futures. Some brokers may provide all of the data feeds for free, but they typically charge higher commissions to compensate. Forex brokers that provide Level II data usually don't charge for it. The detailed data on trade orders can help inform your trading decisions.
Exactly how the data will be used depends in part on your trading strategy, but generally, the order book gives you more detail about the strength and volume behind trade orders. If more orders are waiting on the buy side than the sell side, for example, then that's a bullish signal, and it could give you more confidence in bullish trades.
Brokerages and other market makers profit from the difference between the bid price and the ask price, otherwise known as the " bid-ask spread. It may be only a penny or two or profit, but market makers do that thousands of times per day. Charles Schwab Corporation. Securities and Exchange Commission. TD Ameritrade. Table of Contents Expand. Table of Contents.
Level 1 Market Data. Level II Market Data. Data Availability and Pricing. Trading Day Trading.
Knowing exactly who has an interest in a stock can be extremely useful, especially if you are day trading. Here is what a level II quote looks like:. This tells us that UBS Securities is buying 5, shares of stock at a price of Notably, the number of shares is in hundreds x Now let's take a look at the market participants.
There are three different types of players in the marketplace: market makers, electronic communication networks, and wholesalers. These are the players who provide liquidity in the marketplace. This means that they are required to buy when nobody else is buying and sell when nobody else is selling. They make the market. Electronic communication networks are computerized order placement systems. It is important to note that anyone can trade through ECNs, even large institutional traders.
Many online brokers sell their order flow to wholesalers. These order flow firms then execute orders on behalf of online brokers usually retail traders. Each market participant is recognized by the four-letter ID that appears on level II quotes. Below are some of the more well-known ones. The most important market maker to look for is called the ax. This is the market maker that controls the price action in a given stock.
You can find out which market maker this is by watching the level II action for a few days. The market maker who consistently dominates the price action is the ax. Many day traders make sure to trade with the ax because it typically results in a higher probability of success. Level II quotes can tell you a lot about what is happening with a given stock:. While Level II can be helpful for traders looking for information about a specific stock, they need to also be aware that some market makers use tactics to hide their trades and actions, so as to throw other participants off.
Although watching Level II can tell you a lot about what is happening, there is also a lot of deception. Here are a few of the most common tricks played by market makers. Market makers can hide their order sizes by placing small orders and updating them whenever they get a fill. They do this in order to unload or pick up a large order without tipping off other traders and scaring them away. After all, nobody is going to attempt to push through a , share resistance, but if a persistent 10, share resistance is there, traders may still think it is a beatable barrier.
Market makers also occasionally try to deceive other traders using their order sizes and timing. For example, JPMS may place a large offer to get short sellers on board, only to pull the order and place a large bid. This will force the new shorts to cover as day traders react to the large bid. Market makers can also hide their actions by trading through ECNs. Remember, ECNs can be used by anyone, so it is often difficult to tell whether large ECN orders are retail or institutional.
Level II can give you unique insight into a stock's price action, but there are also a lot of things that market makers can do to disguise their true intentions. Therefore, the average trader cannot rely on level II alone. Rather, they should use it in conjunction with other forms of analysis when determining whether to buy or sell a stock.
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