What Is Level 1?

Level 1, also known as the national best bid and offer, is a trading screen utilized in stock trading. It exhibits real-time quotes of the best bid-offer volume. While level 1 quotes provide fundamental information that is generally adequate for most investors, specific highly active traders may prefer the order book and market depth data available in more advanced quotations.

There are three tiers of quotations on the U.S. stock exchange: Level 1, Level 2, and Level 3. An investor can determine the trajectory of a particular stock’s performance over time and identify areas of market consolidation by examining these quotations.

Comprehending Level 1

Level 1 quotations, previously uncommon before the emergence of the Internet and online trading, are now readily available to investors and are provided at no cost. In addition to broker websites, financial news and media portals (e.g., Yahoo! Finance) also feature these quotations. The exchange will frequently provide the data directly or through a data broker. Reliable Level 1 quotations make getting better prices for securities purchases and sales easier, especially in volatile markets where investors may favor limit orders over market orders.

For instance, an investor seeking to acquire $1,000 worth of stock might consult the Level 1 quote to determine whether the entire quantity is available for purchase at the specified price or whether the order is more likely to be executed at a higher price.

Level 1 quotations are frequently satisfactory for long-term investors not overly concerned with minor price fluctuations. However, to acquire more information, active traders frequently utilize Level 2 quotes to capture much smaller gains.

Quotation Levels

• Level 1 quotes include the fundamental price information for a security, such as the best bid and ask price, in addition to the size of each side.
• Incorporating market depth, Level 2 quotes offer more information than their Level 1 counterparts. Level 2 market depth typically includes the five to ten highest bid and offer prices.
• Level 3 estimates may include as many as twenty of the most competitive ask and bid prices to increase market depth. Users can also enter data directly. Market managers and brokers are the primary users of these.

Every level of three quotations is constructed upon the previous one. Level 1 quotations present the most recent asks and offer investors prices for a specific stock. Additionally, this will reflect the latest information regarding the specific security as recorded in an exchange’s order book. Individual investors encounter these quotes most frequently when they inquire about their financial services provider. Level 1 quotations offer the most accurate bid or ask for a specific security in real-time.

Level 2 quotes provide market depth and real-time quotes for every symbol. The increased level of detail enables proactive traders to ascertain the extent of buy and sell orders at various price points (depth). It reveals the location where most orders are concentrated within the order book (market makers). This feature enables investors to discern the bid/ask spread at its narrowest and lowest point, which is critical information for more prominent investors engaged in high-volume, high-frequency trades (HFT).

As an example, let’s say a trader is actively trading and notices that Acme Co. is presenting a Level 1 quote at $5.00 along with a $5.10×100 offer and a $4.90×500 bid. With an order for 500 shares, the trader may anticipate robust support at $4.90 and relatively feeble resistance at $5.10, given that there are only 100 shares in the market. Level 2 quotes, on the other hand, may indicate an order for 1,000 shares at $5.11 with no orders below $4.90 until $4.85, which significantly devalues the stock relative to what the Level 1 quotes would suggest.

Level 3 quotes offer the same information and services as Level 1 and Level 2 quotes, enabling investors to modify or enter quotes, implement orders, and transmit trade confirmations. This category of quotations is exclusive to registered financial institutions and intermediaries. For instance, market makers engage in Level 3 quotations, attaining the authority to carry out customer orders.

Conclusion

• When you trade stocks, Level 1 is a type of trading screen that shows you real-time quotes for the national best bid and offer in a security.
• Level 1 quotes are now widely available and buyers can get to them for free thanks to the Internet and online trade.
• Most of the time, level 1 quotes are enough for long-term buyers who don’t mind if the price changes a little.
• Active traders who want to make much smaller gains often use Level 2 quotes to find out more.