Are Level II really needed today?

[OHR]

Warren -

I don't know when you last checked TotalView out, but it has become a lot more valuable in the last 6-9 months. You mention ECN books - TotalView now includes the full Brut ECN book (Nasdaq bought Brut ECN and integrated its order book into TotalView in April). In February the technology was improved where TotalView is now faster that Level II data. Anyone with an automated API will see a huge difference.

And the strategy of "crossing the market" I don't really understand. You can take liquidity several levels down in SuperMontage by placing a large order with a limit that crosses the market by several levels (whether your broker takes advantage of that I couldn't tell you).

TotalView is more expensive - $5 a month. But for those who value Level II and want a better, faster version, I don't think that's a lot.

Take care - Bill

William O'Brien
Senior VP, Market Data
Nasdaq

Quote from Ed Zeppeli:

I've been trading off LII for 4 years now. Yes, you see lots of pulled quotes and refreshing quotes but there are patterns in everything and I would be severely handicapped without it.

As for TotalView, no offense to anyone, but I found it absolutely useless. Use ECN books if you want depth of market. At least then you'll be able to hit the size you see a few cents away by crossing the market. You can't cross the market w/ supermontage so what's the point of seeing LEHM 5 cents away showing 100? Most of the time he'll be gone by the time the price comes to him anyway.

TotalView is a NASDAQ moneygrab IMO.

Happy Trading,

Warren

 

[Ed Zeppeli]

Thanks for the reply William.

I haven't seen TotalView since it first rolled out maybe 2 years ago? It's interesting to hear about the changes you've made and perhaps it's worth a second look.

I'll try anything twice!


Regards,

Warren

 

[OHR]

No problem - anyone interested more about TotalView and the recent improvements can look at the attached article from the June issue of Active Trader Magazine. The July issue of TA of Stocks & Commodities also has a product review.

Quote from Ed Zeppeli:

Thanks for the reply William.

I haven't seen TotalView since it first rolled out maybe 2 years ago? It's interesting to hear about the changes you've made and perhaps it's worth a second look.

I'll try anything twice!


Regards,

Warren

 

[Threei]

It's going to be about 8 years since I heard (read) first exchange on Level II necessity/way of use. One would think this must be solved once and for all at some point... Let me summarize most frequent points of such exchanges.

Agenda: SC - Standard Complaint; A - Answer

SC#1: I swing trade and I see no use in Level II, therefore it's useless.
A: Sure, for you. For a scalper it's irreplaceable tool, for most day traders it's very useful, for fundamental trader with time frame measured in years it's absolutely of no use. Suggest a scalper to read balance sheets before entering a trade and look at his face impression. Different tools for different job.

SC#2: Level II doesn't allow to read a direction other than maybe next tick or two.
A: Nope. Mostly because it's not a directional tool. It's a tool for evaluation of liquidity, thus possible slippage on your probable fill. It's necessary for execution risk evaluation in short term trading. In other words, if you need to get out NOW how big your slippage can be? Prbably zero on BEAS and probably anywhere from 10 to 40 cents on TZOO or ABLE when they are hot. You use Level II for risk evaluation and fine-tuning your entries and exits, not for finding out major direction, leave that to charts - just like you use microscope for studying bacteria not for putting a nail in the wooden desk, leave that to a hammer.

SC#3: But bids and offers are being pulled out so I never know whether they will be there for me.
A: So? Anyone has right to put his order on and then change his mind - you included.

SC#4: But some orders have reserve so I never know real size
A: So? Noone ever took an obligation to disclose their intention you included. Just opposite - this is the game of hiding masking and faking intentions. Join in.

SC#5: Some orders are there only to create certain impression scaring traders into selling or encoiuraging them to buy.
A: So? Learn the game, study the patterns, try to tell real from fake. He who puts in fake order takes a risk of getting undesirable fill - so he is entitled to reward if he is succesful in faking his intention. Don't be a sucker (LIvermore, not to be accused of stealing famous words).

Did I miss any?

Hope it helps...

Vad

 

[KevinK]

You were correct with most of it. Except, I believe level II is a critical tool for scalpers because it helps to identify a small trends that you can make a few .01s on...Just my opinion i guess.

 

[couponjohn]

When you look at the level II quotes just what does this part mean?

The inside quote at 11:59 was 24.98 24.99 500 x 400.

THE " 500 x 400" Part

 

[Avalanche]

Quote from TimP:

Level II data is best source of info for immediate supply and demand, and thus very useful for short-term trading decisions.

how can you say it is the "best source" when total view contains everything that level II data contains and a whole hell of a lot more not to mention the fact that is significantly FASTER especially if your doing high frequency automated stuff where milliseconds do infact matter.

 

[Threei]

Quote from KevinK:

Except, I believe level II is a critical tool for scalpers because it helps to identify a small trends that you can make a few .01s on...Just my opinion i guess.

Isn't it what I said?

Quote from Threei:

For a scalper it's irreplaceable tool
.....
direction other than maybe next tick or two

 

[limitdown]

Quote from tdoc:

The problem is, can you trust what you see to be the true market depth? The problem with Level II is the same as with NYSE Open Book. If I see 10,000 shares on the offer, does that really me there is a lot of stock for sale, or is someone buying 100 shares at a time on the bid and slowly accumulating a large position? Even I can set my software to buy 100 shares at a time and slowly build up a large position. the key is reading the tape and seeing where the trades are happening. If 15 consecutive 100 share lots trade on the bid, and 10,000 are posted on the offer, then someone is buying and not selling! Sure they have to honor the offer if someone hits it, even if they don't really want to be a net seller, but who is going to do that when a large offer is posted? I have access to NYSE Open Book and Nasdaq level II, but I generally ignore the "depth" and trade using level I and time and sales.

It (level 2) and other essential factors that help explain what is going on are useful too, depending on the cost and your usage and your trading budget for fixed expenses.

The key to staying long in this game is to keep your fixed expenses low and your variable expenses justifiable based on earnings.

The key to tape reading is having as much explanitory fields or features available as possible.

Market depth certainly helps and adds another demension to the level 2 ananlysis than previously available.

Level III is what the market makers use to set and maintain their books. The added features of Level2 and Market Depth have closed a significant gap between what is available non professionally to the public, than ever available before.

What has happened is the so called black-box features of (so called) smart orders that intelligently keep their true order "server side" and parse out portions of the order based on a whole host of parameters. Some of the more common ones are:
...) % average daily volume
...) % VWAP or TWAP
...) irregular parcels up to desired amount (i.e. true order 20,000 shares to Buy broken into irregular portions of 400, 500, 700, 300 and 200 share lots)
...) +-2% average daily price range vs. current price

these black box methods of hiding true order size are the challenge instead of just reading the tape or knowing "who the hammer is".

 

[couponjohn]

Someone posted a lik for TOTAL VIEW that offers it for 70 bucks a month ,, but then they offer Level II for 40 bucks,, I can get Level II from my broker for 9.95 a month.. Are they anyuone out there that offers TOTAL VIEW cheaper than 70 a month?