Market data comes in different levels of detail. Level 1 shows basic price information, while Level 2 reveals the full order book with all bids and offers. Understanding the difference helps you decide what data you need and how to use it effectively.
What is Level 1 Data?
Level 1 data is the basic market data that most traders see. It includes:
- Best Bid: The highest price someone is willing to pay right now
- Best Ask: The lowest price someone is willing to sell at right now
- Bid Size: Number of shares at the best bid price
- Ask Size: Number of shares at the best ask price
- Last Price: The price of the most recent trade
- Volume: Total shares traded today
This is the data you see on most stock quotes. When someone says "Apple is trading at $175," they are referring to Level 1 data - specifically the last trade price.
Example: AAPL Level 1 might show: Bid $174.95 (500 shares) x Ask $175.00 (300 shares), Last $174.98, Volume 45M
What is Level 2 Data?
Level 2 data shows the complete order book - every bid and ask at every price level, not just the best ones. It reveals:
- All bid prices and their sizes
- All ask prices and their sizes
- Which market makers or ECNs are posting orders
- The depth of the market at each price level
Level 2 is also called "market depth" or the "order book." It shows you the supply and demand at different price levels.
Level 2 Order Book Example
Here is what a Level 2 order book might look like:
| Bid Price | Bid Size | Ask Price | Ask Size |
|---|---|---|---|
| $50.00 | 500 | $50.02 | 300 |
| $49.99 | 1,200 | $50.03 | 800 |
| $49.98 | 2,000 | $50.05 | 1,500 |
| $49.95 | 5,000 | $50.10 | 3,000 |
From this, you can see there is more buying interest at $49.95 (5,000 shares) than at $50.00 (500 shares). The large bid at $49.95 might act as support.
How Traders Use Level 2 Data
1. Identifying Support and Resistance
Large orders in the book can act as temporary support or resistance. If there are 10,000 shares bid at $50.00, the price may struggle to fall below that level until those shares are filled.
2. Reading Market Sentiment
The balance between bids and asks reveals buying or selling pressure. More shares on the bid side suggests buying interest; more on the ask side suggests selling pressure.
3. Timing Entries and Exits
Day traders watch Level 2 to time their trades. They look for large orders being absorbed or walls being lifted to anticipate price moves.
4. Spotting Large Players
Institutional orders can sometimes be identified by their size and behavior. Large orders that keep refreshing at the same price level suggest institutional activity.
5. Avoiding Slippage
Before placing a large order, check if there is enough liquidity in the book to fill you without significant price impact.
Limitations of Level 2
Level 2 only shows visible orders. Hidden orders, iceberg orders, and orders in dark pools are not shown. Market makers can also pull or change orders instantly. The book is a snapshot, not a guarantee.
Level 1 vs Level 2 Comparison
| Feature | Level 1 | Level 2 |
|---|---|---|
| Price Levels Shown | Best bid/ask only | Multiple levels |
| Market Depth | No | Yes |
| Market Maker IDs | No | Yes (NASDAQ) |
| Cost | Usually free | Often paid subscription |
| Best For | Casual traders, investors | Active day traders |
Do You Need Level 2 Data?
You Probably Need Level 2 If:
- You day trade frequently
- You scalp for small profits
- You trade low-volume stocks where depth matters
- You want to understand short-term price movements
- You trade large positions relative to the stock's volume
You Probably Do Not Need Level 2 If:
- You are a long-term investor
- You swing trade over days or weeks
- You trade highly liquid stocks like AAPL or SPY
- You trade small positions in liquid stocks
- You do not want to pay for additional data
Where to Get Level 2 Data
Free Options
- Webull: Free Level 2 data with account (may have conditions)
- Robinhood Gold: Includes NASDAQ Level 2 ($5/month for Gold)
Paid Subscriptions
- NASDAQ TotalView: Complete NASDAQ order book (~$15/month)
- NYSE OpenBook: NYSE market depth data
- Broker platforms: thinkorswim, Interactive Brokers include Level 2 with certain accounts
Level 3 Data: What the Pros Use
Level 3 is reserved for market makers and registered broker-dealers. It allows them to enter and update quotes in real-time. Retail traders cannot access Level 3 data.
Tips for Reading Level 2 Effectively
1. Watch for Spoofing
Large orders that disappear when the price approaches them may be "spoofing" - fake orders intended to manipulate perception. This is illegal but still happens.
2. Look at Order Flow, Not Static Levels
The movement of orders matters more than static levels. Watch how the book changes over time, not just the current snapshot.
3. Combine with Time and Sales
Time and sales (Level 1 trade data) shows actual executed trades. Combine this with Level 2 to see what orders are actually getting filled versus just sitting in the book.
4. Consider the Spread
A tight spread with deep liquidity suggests a healthy, liquid market. A wide spread with thin liquidity means higher trading costs and more slippage risk.
Track Your Trading Performance
Whether you use Level 1 or Level 2 data, tracking your trades helps you improve. Pro Trader Dashboard automatically records your trades and shows what is working.
Summary
Level 1 data shows the best bid and ask prices - enough for most investors. Level 2 data reveals the full order book, showing supply and demand at every price level. Day traders and active traders benefit from Level 2's additional insight into market depth and order flow.
If you are just starting out, Level 1 data is sufficient. As you become more active and your strategies demand more market insight, Level 2 becomes a valuable tool. Just remember that the order book shows intentions, not guarantees, and can change instantly.
Want to learn more about market structure? Check out our guides on order routing and direct market access.