Understanding Level II Quotes Screen

TRAINING MANUAL
BY DEVA JI
Introduction
This document is intended to give the reader a detailed introduction to the Level 2 Screen
and the different parts visible on the Level 2 quote screen

Level 2 Quotes
The Level 2 Quote Screen allows the investor to see the depth of the market. 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.
A typical Level 2 screen display is shown below

Level I
Quotes

Level II
Quotes

Order Entry
Section

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.

Note:
Market makers are broker-dealer firms that stand ready to buy as well as sell the stock.
Hence the market makers by definition ‘make’ the market in that they assure liquidity in
the marketplace by standing to buy from the investor at the ask price, and by standing to
sell to the investor at the bid price. By definition and law they are required to make both
sides of the market (i.e both buy and sell). The market makers may or may not hold an
inventory of stocks. The market makers make money off the bid/ask spread.

Each market maker has a unique four-letter ID that appears on level II quotes called
MMID. Some typical Market Maker MMIDs include
GSCO Goldman Sachs
MSCO Morgan Stanley
LEHM Lehman Bros
JPHQ JP Morgan
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consent of the author.
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 etc.
Orders coming in form the ECNs are displayed next to the respective ECN ids
ARCAX ArcaECN
BRUTBK Brut ECN
INETBK Instinet
etc

Note:
The market maker by definition has to make both sides of the market, meaning the
market maker must have both a Bid quote as well as an Ask quote.

The Level 2 screen shows a ranked list of the best bid and asks prices from each of these
participants, giving you detailed insight into the price action.

The Level 2 Screen is typically divided into 3 sections. The upper section gives the Level
1 Quote i.e. the best Bid/Ask on the stock. The Level 1 data also shows the OHLC (open,
high, low, close) information, along with the Bid Volume (BVol) and Ask Volume (AVol),
and total volume for the day.

The middle section is the actual Level 2 quotes. This section may also have the time/sales
window which displays the lots of stocks that actually traded.

Ask Side:
Bid Side: Increasing
Increasing Prices
Prices

Time and
Sales
Window

Ask
Bid
Side
Side

The Level 2 quote screen has the Bid Side (left side) and the Ask side (right side). Note
that as you come up the bid side the Bid Prices keep increasing, with the best (highest)

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consent of the author.
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bid price on the top. Similarly, as you go down the Ask side the Ask price keeps
increasing the best (lowest) Ask price is displayed on the top.

Note:
Bid is the price at which the investor can sell his stock to the market, Ask is the price at
which an investor can buy the stock from the market. Thus as an investor the best Bid is
the highest bid you can sell to in the market, and the best Ask is the lowest price at
which you can buy from the market

All the quotes belonging to a particular price range are displayed using a single color.
The next best set of prices is displayed using a different color and so on. For example on
the Bid side of the screen CSE, BSE, ASE all have Bid prices of 25.95 and so are all
colored in yellow. NAS is the next best Bid price and so is in a different color.
Correspondingly the next lower bid is 25.94 and the two market makers (CAES, ARCE)
offering this price is colored in red.

Note:
There is no convention for the colors as long as all the MMID offering similar Bids (or
Asks) are in the same color.
Also, from the Level 2 screen you will notice that Market Makers make up both sides of
the market. For example the Market maker CSE is Bidding at 25.95 and Asking at 25.97.

The third section which is optional is the ‘Order Entry’ section, which an investor can use
to place an order. The order entry section allows the investor to place different types of
orders including market order, limit orders etc. The investor may also specify where he
wants to route the order ARCA, INET etc.

Copyright © Prashant Ram All rights reserved

This document may not be reproduced or distributed in part or whole without written
consent of the author.
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