Level II Quotes
Okay, so what is level II you ask? Level II’s provide the stock trader with a lot of very useful information about the stock’s current trading. It shows at a glance all of the open orders for buys (the bid column on the left, in the level II screenshot below) and open order for sells (the ask column of the right, in the level II screen shot below).
Level II’s are the order book of a stock on the NASDAQ stock exchange. When you place an order to buy or sell on the NASDAQ exchange, your order is routed through many different market makers, electronic communication networks (ECNs) or wholesalers. With Level II’s you can see an ordered list of the best bids and asks from each. This gives you, the trader, a lot of detailed insight on price movement. For example a look at the asks in the right column would show you if the ask is “thin” meaning there are few market makers between the best ask and a large percentage jump up in price (thin ask example: 26.23, 26.25, 32.05, 42.05).
To look closer at the columns themselves, we have SHARES, MPID, BID/ASK.
SHARES: This represents the amount of shares ready to be bought (when in the BID column) or to be sold (when in the ASK column). The number is in hundreds so 100 is really 10,000.
MPID: These are the intials of the marketplace or market maker at the given bid or ask. For example: UBSS is UBS Securities, LLC.
BID/ASK: This is the price open for buying (bid) or selling (ask) a stock by the given MPID.
Three Main MPID Types
Market Makers (MM) : These are firms who agree to provide liquidity the the given market. Penny Stocks liquidity are commonly controlled heavily by some market makers. By making a market for you to trade stocks they are “market makers”. They earn their money my profiting off the differences between the bid and ask prices of a stock. See the market makers for more information.
Electronic Communication Networks (ECN) : These are automated systems designed to match up buyers and sellers of a stock. Examples are: NITE, ISLD and ARCA.
Wholesalers (Order flow firms) : Some online brokerages have relationships with market makers or even a large group of market makers. If there is a need to handle a large amount of orders a brokerage may decide to use a wholesaler to execute the trades on their behalf.
We will take a much closer look at market makers in the next section.