How to Buy Stocks at Level 2
In a standard stock quote (level I), the bid (the best price you can sell at) and ask (the best price to buy at) are listed, along with the size of the bid and ask. The size is the amount of shares being offered to sell or buy at the bid and ask prices. With level II, traders can also see the the market depth of the market. This allows traders to see all the bid/ask prices with their size, and from which market maker or market the order is coming from. Traders can trade directly from the level II screen of their trading platform.
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Instructions
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1
Open up the level II trading window of the trading platform.
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2
In the box for "Symbol" enter a stock symbol.
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3
In box for "Position Size" or "Shares" enter amount of shares to be purchased or sold.
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4
To buy, choose a price to buy at and click on any box on the "Ask" column. This will create an order to be sent at the price and destination clicked. Depending on the settings of the level II account, the order will create a pop-up of a summary of the order that the trader needs to confirm, or it will automatically send the order.
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Selling is the exact method of Step 4, but the order is sent to the "Bid" column.
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A limit order is an order to buy or sell at a price different from the current best bid/ask.
For example, if the best bid from Stock XYZ is 99.50, that is the best current price to buy at. If you want to buy at 99.40, you need to enter a buy order at 99.40. To do this you can't click on the bid column at 99.40, since this will create a sell order. Therefore, you need to click on the desired price plus another key at the same time. Depending on the trading platforms, the "other key" is usually "alt," "control" or "shift."
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Tips & Warnings
Level II windows have a lot settings to help customize toward a trader's needs. The most important features are the ability to enter a default position size (so you don't need to spend time entering order size), hot keys for changing position sizes, and changes to colors for every level of the market depth.
The greatest advantage to level II trading is its speed, and the ability to see where orders are coming from. However, traders are cautioned to use demo versions to practice entering real orders, as trading with level II can be tricky at first.
