Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Level II Quote

What it is:

A level II quote is a set of real-time trading information, including the best bid/ask prices from market makers, for a security that trades on the Nasdaq or over the counter (OTC) markets.

How it works (Example):

A level II quote for Company XYZ stock would include the real-time bid price, ask price, quote size, price of the last trade, size of the last trade, high price for the day, and low price for the day. This is the same data given in level I quote but level II quotes also provide a ranked list of the best bid and ask prices from participating market makers in real time. The information comes from the securities dealers that make up the market.

Professional traders usually get level II quotes from a small-order execution system, electronic communication network or other professional trading system.

Why it Matters:

Level II quotes are powerful because they provide information about the latest trades as well as information about who is willing to make trades at certain prices. The quotes essentially give viewers access to the "order book" showing all the offers for a security -- that is, who has an interest in a security and at what price, as well as the interested party's patterns. This, in turn, can tell traders whether a stock's price will increase or decrease in the short-term, and it can help traders understand the trading strategies of other firms.

For example, if a day trader with level II quotes discovers that a particular institution has interest in a stock, it may be an indication that a large trade is pending and it could be an opportunity for the day trader to buy some of the shares in anticipation of the large institutional trade driving the price up. However, traders can also manipulate level II quotes by placing only small orders so as not to tip off other traders about an intention to purchase or sell a large amount of shares. Therefore, level II quotes should not be relied upon without other supporting analysis.

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...