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.