Level 2

Level 2 gives information about what types of traders are now selling or buying stocks on the U.S. market, so it is believed that Level 2 gives an additional clue as to which direction a stock is likely to go in the short term.

Level 2 explained

Level 2 quotations are still relevant and are an indispensable tool for a serious pennystock trader (and in general for anyone) who wants to increase his efficiency and profits.

Level 2 allows you to see the current positions in the stock of your choice beyond the standard bid and ask that you can see on the Internet at the next site with real-time quotes. Level 2 quotes show where and how much market makers and other market participants are placing their buy or sell orders. 

This information is especially useful when trying to determine where a good entry or exit point is, including when trading cheap stocks. If the stack has support in the form of a large Bid, which you see thanks to Level 2, then the investor will know where to place his buy order. 

Conversely, if the stock is rising quickly and you need to exit at a good price, the LeveII data will show where the insurmountable wall of Ask's (hereafter the Ask) is, this will be the signal to place a limit sell order.

Level 2 examples

To better understand what situations can occur when using Level 2, we will show several examples, including the ones to be avoided. You should also be aware that some market makers (hereinafter referred to as MM) show only 5,000 or 10,000 lots in Level 2 for cheap stocks. 

Unlike "normal" stocks, you cannot rely one hundred percent on Level 2 quotes for penny stocks, because U.S. regulators do not require MMs to disclose the entire number of shares displayed in sell or buy orders. 

In reality, a Market Maker may have significantly more shares to sell or buy than the amount we see. You can understand this by observing the trading feed in the Level 2 window. If a particular MM continues to buy or sell shares in large quantities, despite only showing 5,000 shares to buy or sell in Level 2, it is likely that they have much more shares they need to sell.