How to trade using level 2 shares data

What is level 2 data?

Level 2 data is a different, more in-depth look at the market for traders. When you’re on an ordinary trading platform, you’ll receive standard data (level 1) – for example, the current buy price and sell price of that market. However, the information collated in level 2 data is way more advanced and telling.

Level 2 data gives you full access to the order book underneath a share’s buy and sell prices. So, while level 1 data tells you what price you can buy and sell for, level 2 data also tells you what price everyone else in the market is buying and selling that same asset for.

This gives a far more three-dimensional view of real traders’ sentiment, trends and how popular a market really is.

To get access to this kind of data you need a specialist platform. This is why we offer L2 Dealer, an exclusive platform that utilises level 2 data.

It’s important to note that L2 Dealer involves a more complex form of trading as you’re dealing directly with the order book. As such, it isn’t for everyone and is recommended only for experienced traders.

A level 2 trading example

Level 2 data is presented as a ‘queue’ of buyers and sellers on your screen, which you would join if you bought or sold on that market.

Say for example you wanted exposure to Lloyds shares, which are trading at a buy price of 45.5p. However, you have access to data showing what other traders are bidding on these shares. Seeing other traders are offering 45.1p, you can put in a buy order for a lower price than this with our L2 Dealer, so you place one for 43p.

You have now joined the back of the queue for that asset, Lloyds shares. If the share’s buy price reaches 43p, your order could be filled at that price.

However, it’s not guaranteed that your order would be filled (although it’s likely to be) if the market changes dramatically after your order has been placed.

Why trade using level 2 data?

With level 2 data you can:

• View a tradable asset’s full order book to see every bid and offer made on a stock, including size of trade and the price
• Accurately gauge market sentiment, including supply and demand for that market by looking at buyer vs seller ratios, in a way you can’t with level 1 data
• See it in real time, as level 2 data includes the most recent buyer or seller of that asset
• Use volume metrics to assess liquidity of the market
• Analyse bids and offers on a stock over time and their patterns, so you can more accurately predict and trade on trends
• Enter level 2 data auctions, which can increase your chance of getting your order filled at the best price

How to trade using level 2 data

1. Understand how level 2 shares trading works
2. Open a trading or investing account
3. Download and install L2 Dealer
4. Log in, perform your analysis and place your trade

Understand how level 2 shares trading works

Our level 2 data is hosted on our L2 Dealer platform, where you can access and place your orders. L2 Dealer uses direct market access (DMA), which enables you to deal directly onto the order books of major exchanges.

Be aware that DMA and the use of level 2 data is recommended for advanced traders only, as there are complexities and risks involved that are above and beyond what you’d find on our normal platform and with level 1 data.

Find out more about direct market access

Because DMA works very much like an order book, you’ll state what price you want to trade at (the current price of that asset or better) and the size of your trade.

Your order will be filled depending on what order type you use. A ‘good til cancelled’ order will continue to fill that order until you cancel it, while a standard order will be rejected if it cannot be filled in one go, unless you accept a ‘partial fill’ order.

You may not get all the shares you want at that price – your order might be partially filled or not filled at all. It depends on the market movements and the other orders in the queue.

Open a trading or investing account

With us, you can trade or invest using level 2 data. Trading (speculating on upward and downward movements) can be done via CFDs, while investing (buying and owning) can be done via share dealing.

Download and install L2 Dealer

Once you’ve opened and funded a CFD trading or share dealing account, you’ll need our L2 Dealer platform to access the level 2 data.

Get started with L2 Dealer by filling out a quick form

Be aware that there are also minimum requirements for our L2 dealer users, so please ensure you contact us for more information on what those are.

Log in, perform your analysis and place your trade

Once you’ve set up your account and registered for level 2 data with us, it’s time to log into L2 Dealer using your account details.

From there, you’re ready to research your chosen market using both technical analysis and fundamental analysis and place your first trade.

Reading level 2 data: five tips to get started

Working with level 2 data can be intimidating at first. So, we’ve compiled five tips to help you get started.

1. Ensure you read the L2 Dealer manual
2. Customise your alerts
3. Access in-platform news and analysis
4. Read market sentiment through trading volumes
5. Use volume trading analysis

Ensure you read the L2 Dealer manual

Before trading on L2 Dealer with our DMA, you’ll need to confirm that you’ve read and understood the L2 Dealer Manual – a regulatory requirement of all level 2 traders.

Download the L2 Dealer Manual

Customise your alerts

You can set alerts when reading level 2 data so that you don’t have to watch the markets every second of every day. You can customise these alerts to automatically trigger when market conditions occur that are most relevant to you and your trading strategy.

Among other things, these alerts can be set to monitor bid and ask levels, net price change and percentage price change.

Access in-platform news and analysis

With our L2 Dealer, we give you access to real-time charts, updated newsfeeds from Reuters and market commentaries. These are all within the platform, so that you can get instant access to the news that moves markets, as well as expert analysis – to better inform your trading decisions.

Read market sentiment through trading volumes

Properly reading trading volumes using level 2 data can tell you a lot about where a market’s headed. For example, volume increases during a price rise or volumes decreasing during a price fall indicate bullish market sentiment.

Conversely, volume increases during a price downtrend and drops in volume during price spikes indicate a bear market. Gathering this from level 2 data volumes can help you plan your trading strategy in line with market trends and movements.

Use volume trading analysis

Level 2 data can also help you with trading volume analysis, a way to study the amount that a market is traded over a period of time.

Volume in trading can be useful for many things, including validation that a trend is likely to have staying power. For example, if an asset or market sees an upsurge or drop in price, you will be able to look at trading volumes to see those have risen or fallen along with it, confirming if the price change is worth paying attention to.

Level 2 data summed up

• Level 2 data is a more detailed set of information for traders, which gives traders access to the full order book of a market’s buy and sell prices, trading volumes and more
• You need a specialist platform, L2 Dealer, to access level 2 data
• L2 Dealer uses DMA, so you can deal directly onto the order books of major exchanges
• You can trade or invest using level 2 data with either a CFD trading account or an share dealing account
• Level 2 data works as a queue, which you join when you place an order for an asset at its current trading price or better