Level 2 (NASDAQ Level 2 Quotes)

Level 2 is a real-time view of a stock’s order book that shows bid and ask prices and sizes posted by market makers and electronic communication networks (ECNs). It exposes market depth beyond the best bid and offer, helping active traders visualize supply and demand and make more informed entry and exit decisions.

Key takeaways

• Level 2 displays multiple bid and ask price levels and order sizes from market participants, not just the best price.
• It reveals market depth and liquidity, which can help identify support/resistance and short-term momentum.
• Reserve and hidden orders can mask true size; check time & sales to confirm actual executions.
• Rapid quote changes caused by high-frequency trading mean Level 2 shows intent more than guaranteed trades.

How Level 2 works

Level 2 provides a layered view of posted prices:
* Left side — bids (prices buyers are willing to pay) and their sizes.
* Right side — asks (prices sellers are willing to accept) and their sizes.
* Each row typically identifies the market participant (market maker or ECN) posting that quote.

Unlike Level 1, which shows only the inside market (the national best bid and offer, NBBO), Level 2 shows multiple price levels and the associated liquidity at each level. This visibility helps traders assess how much buying or selling interest exists at or near particular prices.

Reserve and hidden orders

ECNs and some market participants can conceal true order sizes:
* Reserve orders: display a smaller “display size” while a larger “reserve” (hidden) size exists behind it. Level 2 shows only the display portion.
* Hidden orders: do not appear on Level 2 at all but still match against incoming orders.

Because displayed size can understate the real supply or demand, traders should corroborate Level 2 signals with time & sales (actual trade prints) to detect when hidden liquidity is being executed.

Advantages for traders

Level 2 can be useful for:
* Gauging liquidity and order flow at specific price levels.
* Spotting large market participant interest (institutional or market-maker activity).
* Timing short-term entries and exits where visible depth matters (scalping, momentum trading).
* Identifying potential support/resistance created by stacked orders.

How to read a Level 2 quote (typical columns)

A common Level 2 display contains six columns, for example:
* MMID (market maker or ECN identifier)
* Bid price
* Bid size (number of shares at that bid)
* Ask price
* Ask size (number of shares at that ask)
* MMID (identifier for the ask-side participant)

Comparing bid and ask sizes and watching changes across rows helps determine pricing pressure and whether liquidity is firm or likely to move.

Limitations and risks

• Visible quotes reflect posted intent, not guaranteed executions. High-frequency trading and rapid order updates can make depth appear to shift without trades occurring.
• Reserve and hidden orders can mislead about true liquidity.
• Interpreting Level 2 requires experience; inexperienced traders can misread spoofing or fleeting activity as meaningful.

Bottom line

Level 2 offers a detailed, real-time view of market depth for NASDAQ-listed securities. It’s a valuable tool for active traders who need to assess liquidity, spot large participants, and refine short-term entries and exits. However, it must be used alongside time & sales and an understanding of hidden liquidity and algorithmic activity to avoid misinterpreting transient or concealed order flow.