DEFINITION of 'Level 1'

A Level 1 quote is the best real-time bid/ask at a given point in time. Level 1 quotes supply basic information that may suffice for most investors, but most active traders prefer order book and market depth information that is found in Level 2 quotes.

BREAKING DOWN 'Level 1'

Level 1 quotes were a relatively rare before the advent of the Internet and online trading but are now offered without charge. These quotes can be found on brokerage websites, such as TDAmeritrade or TradeStation, or 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 of if their order will be likely 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 a few cents, but active traders looking to capture much smaller gains often use Level 2 quotes for 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 that 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 NASD member firms and include the ability to enter quotes and execute orders.

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