Level 1 is a type of trading screen utilized in stock trading that exhibits the best bid-offer-volume quotes in real-time. This feature, known as the national best bid and offer (NBBO), offers fundamental insights pivotal for most investors. However, highly active traders may lean towards order book and market depth information accessible in advanced quote levels.
The U.S. stock market is categorized into three tiers of quotes: Level 1, Level 2, and Level 3. Reviewing these quotes enables investors to gauge a stock’s performance over time and decipher market activity hot spots.
Key Takeaways
- Level 1 is a trading screen displaying real-time quotes for the national best bid and offer in a security.
- Accessibility: With the rise of the internet and online trading, Level 1 quotes are now freely accessible to investors.
- Sufficiency for Many: These quotes are often adequate for long-term investors unconcerned about minor price shifts.
- Optimal for Active Traders: Those pursuing minor gains often rely on Level 2 quotes to access granular information.
Understanding Level 1 Quotes
Before the internet era, Level 1 quotes were scarce. However, they have now become widely available, freely accessible via brokers’ websites and financial news platforms. This information is provided directly by exchanges or through data intermediary services.
Reliable Level 1 quotes guide investors towards better pricing of security buy and sell orders, particularly in quick-paced markets where limit orders might be preferred over market orders.
For example, an investor intending to purchase $1,000 worth of stock can consult Level 1 quotes to determine if their order will fill at the desired price or will necessitate execution at a higher price.
Level 1 quotes generally suffice for long-term investors, who aren’t overly concerned about slight price variances. On the contrary, active traders pursuing smaller profits often utilize Level 2 quotes to gain broader insights.
Quote Levels
Level 1 Quotes
Provide basic price data, including the best bid and ask price and size for each side.
Level 2 Quotes
Offer enhanced detail, with market depth usually up to the 5-10 best bid and offer prices. They help active traders understand the depth and concentration of orders.
Level 3 Quotes
Offer the highest level of detail and functionality. Include everything from Level 1 and 2 and allow users to enter/change quotes, execute orders, and send trade confirmations. These are primarily used by brokers and market makers.
All quote levels build on each other. Level 1 shows the top bid and lowest ask prices for an individual stock, offering the most recent data based on exchange order books. It provides the best real-time bid/ask data for a specific security.
Detailed Example of Level 2 and 3 Quotes Usage
For instance, if an active trader observes Acme Co.’s Level 1 quote as showing $5.00 with a $5.10x100 ask and a $4.90x500 bid, they might perceive strong support at $4.90 with weak resistance at $5.10. However, Level 2 might reveal a 1,000 shares order at $5.11 and no orders below $4.90 until $4.85, indicating a weaker stock position than Level 1 appears to suggest.
Level 3 quotes provide all Level 1 and 2 data and allow experienced investors to manage data inputs, place and modify quotes, execute orders, and confirm trades. These are usually reserved for registered brokers and financial institutions.
Related Terms: Level 2 Quotes, Level 3 Quotes, Market Orders, Limit Orders.
