| Level 2 is a very useful share trading and investing | | | | will often place large orders just far enough from the |
| tool because it offers you live streaming of the order | | | | current price so that it's in no danger of being |
| book of any share you wish to view. So with this | | | | triggered. So if this order was on the sell side of the |
| information you can tell how many buyers and sellers | | | | order book, people viewing Level 2 would |
| are sitting on the order book ready to buy or sell a | | | | automatically see the big seller and therefore would |
| particular share. So how is this information useful to | | | | be inclined to go short themselves. However if the |
| you? | | | | price rises and threatens to take out this order, the |
| Well for a start you can quickly and easily see where | | | | person will suddenly remove the order and the price |
| the share price is likely to move in the near future. | | | | will continue rising and the traders will have been |
| There's no guarantees but the general rule is that the | | | | caught out. |
| more buyers that are placing orders directly onto the | | | | Another common occurrence on Level 2 is iceberg |
| order book of a share, the more likely it is that the | | | | orders. This is where people automatically place a |
| share price will move up, and vice versa. | | | | new order every time one of their orders is |
| It is basically a snapshot of demand and supply. For | | | | triggered, and is a good way of filling a large order |
| instance if total orders on the buy side (ie the left | | | | because people don't notice lots of smaller orders. |
| hand side) are equal to 200,000 shares and there are | | | | Finally there's the problem of market makers. They |
| just 10,000 in total on the sell side then you would | | | | play all kinds of games with investors, and have a lot |
| justifiably expect the share price to move up in the | | | | of influence on the share price, particularly with |
| near future. | | | | smaller shares. It's not uncommon for market makers |
| Unfortunately although Level 2 is a great tool, it's not | | | | to suddenly raise or drop their orders on the order |
| necessarily as easy to make profits as it may seem. | | | | book to either shake weak holders out, or to |
| You just have to spend a day or so watching the | | | | encourage them to buy more shares from them. |
| Level 2 screen for a particular stock to see all kinds | | | | So overall although Level 2 is a useful tool, it's not |
| of games being played. | | | | necessarily a foolproof method of making money. It's |
| Anyone with direct market access can now place | | | | useful for showing demand and supply at any one |
| trades directly onto the order book so this means | | | | time for a particular share, but this information can |
| that you will often see people entering and deleting | | | | also be misleading as well. |
| orders to distort the order book. For example people | | | | |