Level II can provide enormous insight into a stock's price action. It can tell you what type of traders are buying or selling a stock, where the stock is likely to head in the near term, and much more. Below, we'll explain what Level II is, how it works, and how it can help you better understand open interest in a given stock.

Key Takeaways Level II shows you the order book for Nasdaq stocks, including the best bid and ask prices by various market makers and other market participants.

Level II shows you who the market participant is that is making a trade, whether they are buying or selling, the size of the order, and the price offered.

The three players in the marketplace are market makers, who buy and sell at all times, providing liquidity; the ECNs, the computerized order placement systems; and the wholesalers that work with online brokers.

What Is Level II?

Level II is essentially the order book for Nasdaq stocks. When orders are placed, they are placed through many different market makers and other market participants.

Level II will show you a ranked list of the best bid and ask prices from each of these participants, giving you detailed insight into the price action. 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 5,000 shares of stock at a price of 102.5. Note that the number of shares is in hundreds (x100). Now let's take a look at the market participants.

1:48 Introduction To Level II Quotes

The Players

There are three different types of players in the marketplace: market makers, electronic communication networks, and wholesalers.

Market Makers (MM)

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 (ECN)

Electronic communication networks are computerized order placement systems. It is important to note that anyone can trade through ECNs, even large institutional traders.

Wholesalers (Order Flow Firms)

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.﻿﻿