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What are Level II Quotes?

By David White
Updated May 16, 2024
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Thousands of stock transactions take place everyday, not only in the United States but also all over the world. Stock exchanges are familiar institutions in many of the world’s largest countries. Trading at these exchanges is usually frantic.

When a stock is bought and sold, it has two kinds of prices, a bid price and an ask price. The bid price is what someone is willing to pay for the stock. The ask price is what the owner is willing to accept. Each of these prices is called a quote.

The stock markets of the world, especially those in the United States, have tiers of quotes. Level I quotes list the best bid price and the best ask price for each stock. Looking at a Level I quote can give an investor a basic idea of how a stock is performing at any given time.

Level I quotes are somewhat limited in that the investor gets only the best prices for a stock. Level II quotes deliver information including all offers on both sides of the transaction. Using Level II quotes, an investor can make a very informed decision as to whether to buy or sell based on this sometimes extensive information about who is willing to purchase or unload a particular stock and for how much. The highest level is the Level III quote, which identifies the originator of the quote but is only available to a select few, which means that normal investors can’t take advantage of it.

To get Level I and Level II quotes, an investor usually consults a broker, a dealer, or perhaps a data service provider. Using Level II quotes especially, an investor can tell whether a stock is going up or down at a particular time. Having all the bids and asks allows him or her to make this analysis. This is why Level II quotes are so powerful.

Another use of Level II quotes is to determine where the big buyers and sellers are positioned on certain stocks. If you are a follower of Merrill Lynch, for example, then you will want to know where they stand on buying or selling a stock that you have your eye on. Using Level II quotes, you can discover this information. If you trust Merrill Lynch’s instincts and their best practices, then you can emulate their formulas for success by examining Level II quotes for Merrill Lynch’s picks.

Level II quotes are beneficial to investors looking to make money in the short term. Long-term investors, however, probably have a strategy in mind that requires less immediate action and hopes for more growth over time. Level II quotes can still work to the advantage of long-term investors, but they are most effective when used in conjunction with short-term strategies, since the kinds of radical day-to-day price changes that might wreak havoc on a short-termer’s strategy and money won’t significantly affect someone who is taking the long view.

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Discussion Comments
By anon49102 — On Oct 17, 2009

To know how Level 2 quotes work read Day "Trading Survival guide" It will change your life.

By anon36017 — On Jul 09, 2009

Its all about supply and demand. If there is a huge difference between the bid and ask then no orders will get filled, then once you see the bid going up to meet the ask or vice-versa that will determine which direction the price is headed.

By bayquoc — On Apr 11, 2008

I am new to stock. Would appreciate a few examples of how Level II quotes are showing whether a stock is trending up or down in price, plus other enlightenment if possible. Most appreciated. BayQuoc

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