Level II and Day Trading
Let's focus on the Nasdaq
for the purposes of this page. Level II is a day trading system
which provides a list of all buyers and sellers for each stock being
day traded on the Nasdaq exchange. Bids (i.e. requests from buyers
to purchase quantities of stocks) are arranged in price order (from
the highest bid to the lowest bid) and Asks (sellers - the opposit
of buyers) are arranged from the lowest to highest price.
NASDAQ Level II allows
a day trader to guage the "depth" of the market - how
much liquidity there is, where the likely "thin" spots
are and so on. It can therefore help in deciding whether to place
a day trade or not. If you wish to use a level II system with any
degree of success, a day trading player must discover the importance
of each market participant and market maker he can see on the screen.
This takes time and effort - other players have worked hard for
this day trading secret information and are unlikely to share it
with you for free.
A direct access day trading
system that utilises NASDAQ Level II makes day trading rather more
likely to succeed, as it will 'level the field', i.e. it is almost
the last piece of information that can be legally obtained (being
able to see the market maker's "book" would be the last
piece of info!). Some trading accounts provide this info free -
for example at time of writing Ameritrade supply a java-based Level
II viewer for th eIsland network.