Are Level II really needed today?

[couponjohn]

In another post I had , I was told Level II may no longer be needed with todays automation.

Do you people find this to be true or not?

Is level II worth the while for day trading or should we just stick to the interface that companys like scottrade or IB offer?

1. Yes Level II is needed
2. No they are no longer needed

 

[Chagi]

Quote from couponjohn:

In another post I had , I was told Level II may no longer be needed with todays automation.

Do you people find this to be true or not?

Is level II worth the while for day trading or should we just stick to the interface that companys like scottrade or IB offer?

1. Yes Level II is needed
2. No they are no longer needed

Market depth is a part of a trader's toolbox, I doubt that any serious equities trader would deliberately avoid having access to this. Of course, that's just my opinion, I'm sure we'll now see a bunch of posts advising that I am wrong.

 

[tdoc]

Quote from Chagi:

Market depth is a part of a trader's toolbox, I doubt that any serious equities trader would deliberately avoid having access to this. Of course, that's just my opinion, I'm sure we'll now see a bunch of posts advising that I am wrong.

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.

 

[Mike805]

If by L2 you also mean the inclusion of time and sales then I strongly believe you need L2 (or instant T&S).

Tape reading is essential no matter how you trade IMO.

Mike

 

[QuenkishZakos]

Quote from couponjohn:

In another post I had , I was told Level II may no longer be needed with todays automation.

Do you people find this to be true or not?

Is level II worth the while for day trading or should we just stick to the interface that companys like scottrade or IB offer?

1. Yes Level II is needed
2. No they are no longer needed

for very short term trading & scalping it is a very useful tool.

 

[trade_agent]

Quote from couponjohn:

In another post I had , I was told Level II may no longer be needed with todays automation.

Do you people find this to be true or not?

Is level II worth the while for day trading or should we just stick to the interface that companys like scottrade or IB offer?

1. Yes Level II is needed
2. No they are no longer needed

Lev II and NYSE open book are a must if you trade large volume. I trade 1 to 3 mm shares a day, so in my world it is needed. The guys that trade a few thousand shares at a clip will not need to see the depth in a liquid security. With the influx of smart routers the need to sweep the book via the lev II has diminished, but all bets are off if you have a large ticket, and no liquidity.

 

[jrlvnv]

Since this is a topic of level 2 and I am slowly trying to get back into trading and have never even seen a lvl 2 screen, I have a question. Friend from work use to trade off of a lvl 2 screen until he went deep into it. His conclusion was and I am quoting to best of my memory for forgive me if it is a little off ....." you can't trade off of lvl 2 screen and here is why... you might see 50 people in line to buy and 10 in line to sell.... in the sell you might sell someone selling 1000 shares each and all 50 of the buyers are lined up to buy so you get in line cause there should be a uptick WRONG the 10 lot order you saw was from a institution and wasn't a 1000 but 5 million so you get filled and stock goes down.... " He was saying institutions only have to show a order of a 1000 shares but can be a 1000 or really anything they want. He went on saying how the odds are stacked in there favor and the little guy has a very small chance of success since there really is no fair way to use lvl 2 since you never know what is really out there on the bid or offer side since some of the orders can be institutions and don't have to post there acually size.
I think that sums it up pretty good. Is this true? If so how can people use a level 2 screen at all then? Thanks for any comments

 

[Avalanche]

level II is somewhat dated most pro's are using something called "total view" (nasdaq) its faster than level II and shows much more depth.

as to the usefulness question, its definitely useful but it varies widely as to how much according to how your trade.

the easiest example of its use would be the depth you see in total view on stock that doesn't trade but 500K-750K shares per day. The level II might show 1300 shares between you and the whole number, total view might show 2500 or 4000, whatever.

What is helpful is if you have 5K shares and its printing .06, then .05, the .04 and its THIN. Seeing that full depth gives you an idea of where the exit door is and allows you to lean on size or adjust the rate at which you can work an order or just get the hell out.

yes, orders can pull, they are spoofed, refreshed, hidden, etc, but its still additional information and over time you can learn to quantify it somewhat.

 

[loufah]

Level II is useful to me when the size at the NBBO is smaller than what I need. Some Nasdaq stocks I trade are only showing 100 or 200 at the NBBO nowadays, and if I'm trying to unload 500 or 1000 I want to look a few cents deeper to see if the size is there. I should probably just switch to a broker that charges per-share instead of per-ticket; then I wouldn't care as much about doing multiple smaller trades.

 

[mahram]

get a broker that charges both for share and for trade, so you have the option of trading both, Level 2 and totalview are useful, but its often deceptive. Like other posters said, you could have a bid for 100 at one level, and you could take it, but then another 100 shows up, and it ends up being 100K lot, or you have a market maker coming in and shaking up the whole place and your level 2 or totalview is down the drain. Keep total view, but on the subject of the ny open book, complete junk. You have specialists, who completely trash it and make it almost useless.

Quote from loufah:

Level II is useful to me when the size at the NBBO is smaller than what I need. Some Nasdaq stocks I trade are only showing 100 or 200 at the NBBO nowadays, and if I'm trying to unload 500 or 1000 I want to look a few cents deeper to see if the size is there. I should probably just switch to a broker that charges per-share instead of per-ticket; then I wouldn't care as much about doing multiple smaller trades.