Are Level II really needed today?

Discussion in 'Order Execution' started by couponjohn, Jun 20, 2005.

Is Level II need anymore with todays automation?

  1. Yes They are needed

    52 vote(s)
    53.6%
  2. No they are no longer needed

    45 vote(s)
    46.4%
  1. OHR

    OHR

    Warren -

    I don't know when you last checked TotalView out, but it has become a lot more valuable in the last 6-9 months. You mention ECN books - TotalView now includes the full Brut ECN book (Nasdaq bought Brut ECN and integrated its order book into TotalView in April). In February the technology was improved where TotalView is now faster that Level II data. Anyone with an automated API will see a huge difference.

    And the strategy of "crossing the market" I don't really understand. You can take liquidity several levels down in SuperMontage by placing a large order with a limit that crosses the market by several levels (whether your broker takes advantage of that I couldn't tell you).

    TotalView is more expensive - $5 a month. But for those who value Level II and want a better, faster version, I don't think that's a lot.

    Take care - Bill

    William O'Brien
    Senior VP, Market Data
    Nasdaq


     
    #21     Jun 30, 2005
  2. Thanks for the reply William.

    I haven't seen TotalView since it first rolled out maybe 2 years ago? It's interesting to hear about the changes you've made and perhaps it's worth a second look.

    I'll try anything twice!


    Regards,

    Warren
     
    #22     Jun 30, 2005
  3. OHR

    OHR

    No problem - anyone interested more about TotalView and the recent improvements can look at the attached article from the June issue of Active Trader Magazine. The July issue of TA of Stocks & Commodities also has a product review.

     
    #23     Jun 30, 2005
  4. Threei

    Threei

    It's going to be about 8 years since I heard (read) first exchange on Level II necessity/way of use. One would think this must be solved once and for all at some point... Let me summarize most frequent points of such exchanges.

    Agenda: SC - Standard Complaint; A - Answer

    SC#1: I swing trade and I see no use in Level II, therefore it's useless.
    A: Sure, for you. For a scalper it's irreplaceable tool, for most day traders it's very useful, for fundamental trader with time frame measured in years it's absolutely of no use. Suggest a scalper to read balance sheets before entering a trade and look at his face impression. Different tools for different job.

    SC#2: Level II doesn't allow to read a direction other than maybe next tick or two.
    A: Nope. Mostly because it's not a directional tool. It's a tool for evaluation of liquidity, thus possible slippage on your probable fill. It's necessary for execution risk evaluation in short term trading. In other words, if you need to get out NOW how big your slippage can be? Prbably zero on BEAS and probably anywhere from 10 to 40 cents on TZOO or ABLE when they are hot. You use Level II for risk evaluation and fine-tuning your entries and exits, not for finding out major direction, leave that to charts - just like you use microscope for studying bacteria not for putting a nail in the wooden desk, leave that to a hammer.

    SC#3: But bids and offers are being pulled out so I never know whether they will be there for me.
    A: So? Anyone has right to put his order on and then change his mind - you included.

    SC#4: But some orders have reserve so I never know real size
    A: So? Noone ever took an obligation to disclose their intention you included. Just opposite - this is the game of hiding masking and faking intentions. Join in.

    SC#5: Some orders are there only to create certain impression scaring traders into selling or encoiuraging them to buy.
    A: So? Learn the game, study the patterns, try to tell real from fake. He who puts in fake order takes a risk of getting undesirable fill - so he is entitled to reward if he is succesful in faking his intention. Don't be a sucker (LIvermore, not to be accused of stealing famous words).

    Did I miss any?

    Hope it helps...

    Vad
     
    #24     Jun 30, 2005
  5. KevinK

    KevinK Guest

    You were correct with most of it. Except, I believe level II is a critical tool for scalpers because it helps to identify a small trends that you can make a few .01s on...Just my opinion i guess.
     
    #25     Jun 30, 2005
  6. When you look at the level II quotes just what does this part mean?

    The inside quote at 11:59 was 24.98 24.99 500 x 400.

    THE " 500 x 400" Part
     
    #26     Jun 30, 2005
  7. how can you say it is the "best source" when total view contains everything that level II data contains and a whole hell of a lot more not to mention the fact that is significantly FASTER especially if your doing high frequency automated stuff where milliseconds do infact matter.

    :confused:
     
    #27     Jun 30, 2005
  8. Threei

    Threei

    Isn't it what I said? :)

     
    #28     Jun 30, 2005
  9. It (level 2) and other essential factors that help explain what is going on are useful too, depending on the cost and your usage and your trading budget for fixed expenses.

    The key to staying long in this game is to keep your fixed expenses low and your variable expenses justifiable based on earnings.

    The key to tape reading is having as much explanitory fields or features available as possible.

    Market depth certainly helps and adds another demension to the level 2 ananlysis than previously available.

    Level III is what the market makers use to set and maintain their books. The added features of Level2 and Market Depth have closed a significant gap between what is available non professionally to the public, than ever available before.

    What has happened is the so called black-box features of (so called) smart orders that intelligently keep their true order "server side" and parse out portions of the order based on a whole host of parameters. Some of the more common ones are:
    ...) % average daily volume
    ...) % VWAP or TWAP
    ...) irregular parcels up to desired amount (i.e. true order 20,000 shares to Buy broken into irregular portions of 400, 500, 700, 300 and 200 share lots)
    ...) +-2% average daily price range vs. current price

    these black box methods of hiding true order size are the challenge instead of just reading the tape or knowing "who the hammer is".
     
    #29     Jun 30, 2005
  10. Someone posted a lik for TOTAL VIEW that offers it for 70 bucks a month ,, but then they offer Level II for 40 bucks,, I can get Level II from my broker for 9.95 a month.. Are they anyuone out there that offers TOTAL VIEW cheaper than 70 a month?
     
    #30     Jun 30, 2005