Level 3 data: What is it & why is it hidden from retail traders?

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pcp198

Trading is a game that revolves around information. Generally, if you have more information than competing traders you have a undisputed edge. Examples include: HFT algos, inside information about upcoming news, and access to pending stop and limit orders on the exchange (also called level 3).
HFT algos are discussed alot here, I'll leave that aside. Insider trading is clearly illegal (unless you work in congress). Why are NASD member firms (market makers) allowed access to level 3, but retail firms are not?
 
Quote from pcp198:

Trading is a game that revolves around information. Generally, if you have more information than competing traders you have a undisputed edge. Examples include: HFT algos, inside information about upcoming news, and access to pending stop and limit orders on the exchange (also called level 3).
HFT algos are discussed alot here, I'll leave that aside. Insider trading is clearly illegal (unless you work in congress). Why are NASD member firms (market makers) allowed access to level 3, but retail firms are not?
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because they have paid for a license to be a market maker.

If you want it, you have to pay for it. Its so simple.

Market Makers, need the Level 3 information, to do their trades. Otherwhise they couldnt make any profits. As far as i know, they are mostly scalpers and play around with the orders from their clients to make little profits, a hundred or thousand times.
They are scalpers and their edge is that they always have incoming orders where they can decide where to buy or sell it from or to their clients, the slippage we pay is their profit.
Without level 3 that would not work.

Retail Brokers without a market maker division, does not need this anyways, they just make money on the spread and commissions.
 
Quote from HATEtheRisk:

because they have paid for a license to be a market maker. If you want it, you have to pay for it. Its so simple.
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If its that simple why dont big firms like Etrade and TDA pay the membership fee so their clients have access to it?

Quote from HATEtheRisk:

Market Makers, need the Level 3 information, to do their trades. Otherwhise they couldnt make any profits.
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So market makers need it to trade profitably, but that logic doesnt apply to retail traders. makes sense.. :eek:

Quote from HATEtheRisk:
Retail Brokers without a market maker division, does not need this anyways, they just make money on the spread and commissions. [/B]
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retail brokers need what helps their clients make money.
 
Quote from pcp198:

If its that simple why dont big firms like Etrade and TDA pay the membership fee so their clients have access to it?
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How would they transmit it to you? How would you display it? What would you do with the data?

Vast majority of retail can't even keep up with a 5-deep MBP feed when things get busy, and Level 3 is a great deal heavier than that.

retail brokers need what helps their clients make money.
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How, specifically, would you, yourself, make money with an L3 feed?
 
Quote from Random.Capital:

How would they transmit it to you? How would you display it? What would you do with the data?

Vast majority of retail can't even keep up with a 5-deep MBP feed when things get busy, and Level 3 is a great deal heavier than that.
More...

Why would it be a problem to display the # of limit and stop orders in each price increment above and below the bid/ask? that amount of data shouldnt slow down your platform. Explain, what's the difference between what I described and a 'L3 feed'?
 
Quote from pcp198:

Explain, what's the difference between what I described and a 'L3 feed'?
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If you don't know what the feature is, why are you asking for it?

What you're describing (and more) you can get from a $20/month TotalView feed.
 
Random, I'm not an expert on L3, thats why i'm asking the questions. It seems unfair that retail traders are excluded from viewing the # of limit & stop orders waiting on the exchage. Again, if that is different from L3, explain the difference.
 
Quote from pcp198:

If its that simple why dont big firms like Etrade and TDA pay the membership fee so their clients have access to it?

So market makers need it to trade profitably, but that logic doesnt apply to retail traders. makes sense.. :eek:

retail brokers need what helps their clients make money.
More...



Links you might find enlightning...
http://www.nasdaqtrader.com/Trader.aspx?id=MarketMakerProcess
http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2
http://www.nasdaqtrader.com/trader.aspx?ID=topliquidity

And here's a current MPID listing...
TDAR TDCM (TD) & ETRD ETRF ETRS (Etrade) are market making participants.
http://www.nasdaqtrader.com/dynamic/SymDir/mpidlist.txt

You don't need a level 3... regulate all securities be quoted with 4 decimal precision, get your hard hat and steel-toed shoes, and hold onto your wallet!
 
http://www.elitetrader.com/vb/showthread.php?s=&threadid=240154&perpage=6&pagenumber=1

Quote from cerco:

The ECN full book (Level III) used by MM's (market makers) which includes size for each price tier buy and sell side - showing large orders or clusters of orders away from the current market indicating support and resistance levels. This can be used to "hunt" stops, triggering them to drive the price lower in order to buy the stock at lower prices.
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This simply and accurately sums up level 3. I'm surprised most day traders dont care or are clueless they dont have access to this information.
 
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