What is Level 1?

Level 1 is a type of trading screen used in stock trading that displays the best bid-offer-volume quotes in real time. Level 1 quotes supply basic information that, for the most part, is more than sufficient for most investors, though some extremely active traders prefer order book and market depth information that can be found in Level 2 quotes.

Key Takeaways

  • Level 1 is a type of trading screen used in stock trading that displays the best bid-offer-volume quotes in real time.
  • Level 1 quotes were relatively rare before the advent of the Internet and online trading, but are now widely offered, and investors can access them for free.
  • Level 1 quotes are often enough for long-term investors that don't care too much about the price changing slightly, but active traders looking to capture much smaller gains often use Level 2 quotes so they can gather more information.

Understanding Level 1

Level 1 quotes were relatively rare before the advent of the Internet and online trading, but are now widely offered, and investors can access them for free. These quotes can be found on brokerage websites, such as TD Ameritrade or TradeStation, as well as across hundreds of different financial news and media websites, such as Morningstar or Yahoo! Finance. The information is often provided directly by an exchange or through a data broker intermediary.

Reliable Level 1 quotes aid investors in getting better prices for security purchases and sales, especially in fast-moving markets where investors may prefer limit orders rather than market orders.

For example, an investor looking to purchase $1,000 worth of a stock may check the Level 1 quote to see if they will be able to purchase the entire amount at a given price or if their order will likely be executed at a higher price.

Level 1 quotes are often enough for long-term investors that don't care too much about the price changing slightly, but active traders looking to capture much smaller gains often use Level 2 quotes so they can gather more information.

Level 1 vs. Level 2 Quotes

Level 1 quotes provide the best real-time bid/ask for a given security. By contrast, Level 2 quotes go a step further by offering real-time quotes for each market maker. The added granularity helps active traders determine the magnitude of buy and sell orders at different prices (market depth) and shows where most orders are concentrated among market makers (order book).

For example, suppose that an active trader sees that Acme Co. has a Level 1 quote showing a $5.00 price with a $5.10x100 ask and a $4.90x500 bid. The trader may assume there is strong support at $4.90 with an order for 500 shares and relatively weak resistance at $5.10 with just 100 shares on the market. However, Level 2 quotes may show an order for 1,000 shares at $5.11 and no orders below $4.90 until $4.85, which makes the stock look a lot weaker than the Level 1 quotes would imply.

There are also Level 3 quotes, but these are restricted to the National Association of Securities Dealers (NASD) member firms and include the ability to enter quotes and execute orders.