What is Level 2 Market Data?

What is Level 2?

Level 2 is a generalized term for market data that includes the scope of the bid and ask prices for given security. Also called depth of book, level 2 includes the price book and order book, listing all price levels of quotes submitted to exchange and each individual quote.

The price book (also called “market-by-price” or MBP) aggregates quotes at the same price, showing all quotes for the same bid or ask price as one line in the book and one aggregate volume. Certain exchanges offer summarized views of the price book, supplying the 5-15 highest bids and 5-15 lowest offers to simplify the book view and provide more affordable access to level 2 data. For traders, the price book is an easily referenceable view of the demand for security and can underscore where points of support or resistance exist.

Conversely, the order book (also called “market-by-order” or MBO) provides a more granular view of level 2 data, listing all quotes at each price level. This depth of book for security is valuable for garnering the true demand and more accurately forecasting the behavior of price movement. The order book is referenced by some professionals as level 3 market data to distinguish the detailed view of quotes from the aggregated view of a price book. Regardless of terminology, understanding the nuances allows a broker-dealer or asset manager to better assess market data needs and communicate those to suppliers and connectivity providers.

Webull & NASDAQ Partnership

Webull has recently established a strategic partnership with NASDAQ to bring all our clients premier Level-2 Market Data, powered by Nasdaq TotalView. To support this partnership, we have comprehensively upgraded our products to provide even more complete market data. These advanced quotes will be able to provide you with a deeper look into the market. We have also readjusted the subscription fee; decreasing it from $24.99/month to $1.99/month. All clients who have signed up with us will receive a 3-month complimentary subscription to Level-2 Market Data.

Your 3-month complimentary Level 2 Market Data (Nasdaq TotalView) subscription will begin on 08/20/2020 and end on 11/21/2020.

Once your complimentary 3-month Level 2 Market Data subscription has ended, you may choose to pay a $1.99/month subscription fee to continue receiving these advanced quotes. (The previous subscription fee was $24.99/month!) If you do not wish to continue receiving Level 2 Market Data after your complimentary 3-month subscription, you will receive Level 1 Market Data (Nasdaq Basic) instead. Level 1 Market data is completely free and there is no end date for this offer.

How to Read Level 2 Price and Order Books

The order and price books read as a ledger of the bid and ask prices at an exchange. The book is sorted with the highest bid and lowest ask quotes first, the first line item for each representing the BBO (or NBBO in a composite price book). Each bid and ask includes the order size in shares or 100-share lots and the bank or market maker on the exchange that submitted the order.

The level 2 order information shows a weighting of bids and asks where volume has accumulated. These points indicate thresholds for supply and demand where sentiment may doubt price movement to surpass. This level of detail is necessary for trading algorithms seeking to forecast liquidity. For example, a focus of bids around a given price may suggest imminent liquidity if security is anticipated to decrease in price.

Level II Market Data Terminology

Highest Bid Prices

Shows the highest five to 15 prices where traders are willing to buy an asset and have placed an order to do so. It means you not only see the current bid, but also all the bids currently below it. In actively traded stocks, there will typically be bids every $0.01 below the current bid, and in actively traded futures, there will typically be a bid each tick below the current bid. If there is a gap between the current bid and next bid, that typically means the stock or contract may have a larger bid/ask spread than stocks with bids or offers at every visible price level.

Bid Sizes

The number of shares, forex lots or contracts that people are trying to buy at each of the bid prices.

Lowest Ask Prices

The lowest five to 15 prices where traders are willing to sell an asset and have placed an order to do so. In actively traded stocks, there are offers every $0.01 above the current ask, and in actively traded futures, there are offers each tick above the current ask.

Ask Sizes

The number of shares, forex lots, or contracts that are available at each of the ask prices.

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