Level 2 quotes show you the order book - all the buy and sell orders waiting to be filled. This information helps traders understand supply and demand and anticipate price movements.
What are Level 2 Quotes?
Level 2 (also called market depth) shows:
- Bid side: All buy orders with price and size
- Ask side: All sell orders with price and size
- Market maker IDs: Who is placing the orders
- Order sizes: How many shares at each price
Level 1 vs Level 2: Level 1 shows only the best bid and ask. Level 2 shows the full order book with multiple price levels.
Reading the Order Book
The order book is displayed in two columns:
- Left (bid) side: Buyers waiting at various prices
- Right (ask) side: Sellers waiting at various prices
- Larger sizes suggest stronger support or resistance
- The spread is the gap between best bid and best ask
Level 2 Example
Stock XYZ:
Bids: $50.00 (5,000), $49.95 (3,000), $49.90 (10,000)
Asks: $50.05 (2,000), $50.10 (4,000), $50.15 (8,000)
The spread is $0.05. Large bid at $49.90 suggests support. Large ask at $50.15 suggests resistance.
What Level 2 Tells You
- Supply and demand: More bids = buying pressure, more asks = selling pressure
- Support levels: Large buy orders create floors
- Resistance levels: Large sell orders create ceilings
- Liquidity: Tight spreads and deep books mean easy entry/exit
Time and Sales
Time and sales (the tape) shows actual executed trades:
- Price, size, and time of each trade
- Trades at the ask price suggest buying
- Trades at the bid price suggest selling
- Large prints can signal institutional activity
Limitations of Level 2
- Hidden orders: Not all orders are visible
- Spoofing: Large orders may be pulled before execution
- Dark pools: Institutional trades happen off-exchange
- Speed: Order book changes rapidly
When Level 2 is Useful
- Day trading and scalping
- Timing entries and exits
- Identifying support and resistance
- Gauging short-term supply and demand
When Level 2 is Less Useful
- Long-term investing (fundamentals matter more)
- Swing trading (daily charts matter more)
- Illiquid stocks (thin order books can be deceiving)
Monitor Your Positions
Pro Trader Dashboard tracks all your positions with real-time profit/loss.
Summary
Level 2 quotes show the full order book, revealing supply and demand beyond the best bid and ask. Use it to identify support and resistance, gauge liquidity, and time entries. Remember that the order book has limitations - hidden orders and spoofing can make it misleading.
Learn more: day trading vs swing trading and volume analysis.