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What Is Level 1?
Let me explain what Level 1 is in stock trading. It's a type of trading screen that shows the best bid-offer-volume quotes in real-time, essentially the national best bid and offer, or NBBO. These Level 1 quotes give you the basic information that's usually enough for most investors. If you're an extremely active trader, though, you might want the order book and market depth from higher-level quotes.
In the U.S. stock market, there are three tiers of quotes: Level 1, Level 2, and Level 3. By looking at these, you can see how a specific stock performs over time and where the market action is focusing.
Key Takeaways
Here's what you need to know about Level 1: it's a trading screen in stock trading that displays real-time quotes for the national best bid and offer in a security. With the internet and online trading, these quotes are now widely available, and you can access them for free. For long-term investors who aren't too concerned about small price changes, Level 1 quotes are often sufficient. But if you're an active trader aiming for smaller gains, you might turn to Level 2 quotes for more details.
Understanding Level 1
Before the internet and online trading, Level 1 quotes were pretty rare, but now they're widely offered, and you can get them for free. You'll find these quotes on brokers' websites and financial news portals like Morningstar or Yahoo! Finance. The data often comes directly from an exchange or through a data broker.
Reliable Level 1 quotes help you get better prices when buying or selling securities, especially in fast-moving markets where you might prefer limit orders over market orders. For instance, if you're looking to buy $1,000 worth of stock, check the Level 1 quote to see if you can get the full amount at the quoted price or if it'll execute at a higher one.
As I mentioned, Level 1 is usually enough for long-term investors who don't mind slight price shifts. Active traders chasing smaller gains, however, often use Level 2 to gather more information.
Quote Levels
Let me break down the quote levels for you. Level 1 quotes provide basic price data for a security, including the best bid and ask price plus size on each side. Level 2 adds market depth, showing typically up to the 5-10 best bid and offer prices. Level 3 goes further with up to 20 of the best bids and asks, and users can input data directly—these are mainly for brokers and market makers.
All three levels build on each other. Level 1 gives you the highest bid and lowest ask for a stock, based on the most recent order book data from an exchange. This is what most individual investors see when they request quotes from their financial services.
Level 2 offers more granularity with market depth for each symbol, helping active traders see the size of buy and sell orders at different prices and where orders are concentrated. This lets you find the tightest bid/ask spreads, which matters for high-volume or high-frequency trades.
For example, suppose you're an active trader looking at Acme Co. with a Level 1 quote of $5.00 price, $5.10x100 ask, and $4.90x500 bid. It might look like strong support at $4.90 and weak resistance at $5.10. But Level 2 could reveal 1,000 shares at $5.11 and nothing below $4.90 until $4.85, making the stock appear weaker than Level 1 suggests.
Then there are Level 3 quotes, which include everything from Level 1 and 2, plus the ability to enter or change quotes, execute orders, and confirm trades. These are reserved for registered brokers and financial institutions, like market makers who use them to handle customer orders.
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