Execution & trading costs

Level 2 quotes

Level 2 quotes are a real-time display of bid and ask prices and displayed share quantities at multiple price levels, offering a view of order-book depth beyond the best bid and ask.

What it means

A Level 2 screen shows more of the visible order book than a top-of-book quote. Instead of only the highest displayed bid and lowest displayed ask, it shows prices and displayed share quantities at additional levels. Depending on the data feed and market, it may also identify venues or market participants.

Bids represent displayed interest in buying; asks represent displayed interest in selling. The highest bid and lowest ask form the displayed best prices in the view provided. Level 2 is a snapshot that can change rapidly, not a list of guaranteed fill prices. Coverage varies by feed: a screen may show one venue, several venues or a consolidated view, and it may omit hidden orders.

How it is calculated

Level 2 quotes are market data, not a single calculated indicator. One useful calculation from them is cumulative displayed depth: D_side(P) = Σ q_i for displayed levels i on that side priced through P.

  • D_side(P) is cumulative displayed depth, in shares, for the bid or ask side through the chosen price.
  • q_i is the displayed share quantity at price level i, in shares.
  • P is the chosen price limit, in US$ per share in this example. For asks, include levels at or below P; for bids, include levels at or above P.
  • Σ means add the qualifying displayed quantities. Whether quantities from different venues can be combined meaningfully depends on what the feed shows and whether the quotes are accessible.

The displayed bid-ask spread is another calculation: spread = lowest displayed ask − highest displayed bid, in US$ per share. Neither measure includes hidden liquidity or guarantees execution.

Worked example

Suppose a hypothetical Level 2 display shows these ask levels for a US stock:

Ask price Displayed shares
US$50.02 100
US$50.03 200
US$50.05 300

The highest displayed bid is US$50.00. First, the displayed spread is US$50.02 − US$50.00 = US$0.02 per share.

Next, consider a hypothetical order to purchase 250 shares. Through US$50.03, cumulative displayed ask depth is 100 + 200 = 300 shares. That exceeds 250 shares, but it does not promise a complete fill at those prices: quotes can change or be canceled, and other orders can reach the displayed liquidity first.

If those quantities stayed available and the order filled 100 shares at US$50.02 and 150 at US$50.03, its illustrative average price would be (100 × US$50.02 + 150 × US$50.03) ÷ 250 = US$50.026 per share. This arithmetic excludes fees and any subsequent price movement.

Why it matters before you trade

Level 2 can reveal that the displayed quantity at the best price is smaller than an intended order. Looking at successive price levels helps distinguish the quoted spread from the prices that might be encountered when seeking a larger fill. It also provides context for liquidity, possible partial fills and the sensitivity of an order to changes in the book.

Displayed depth is not the same as actual executable liquidity. Hidden orders, venue coverage, latency, order priority and rapidly changing quotes can all affect the result. A large displayed order may disappear; a small display does not prove that no other liquidity exists.

How PreTrAIde uses it

The product facts do not say that PreTrAIde ingests or displays live Level 2 quotes. Its pre-trade analysis instead estimates bid-ask spread using a liquidity-tier model with a volatility uplift and a one-tick floor, and estimates market impact using an Almgren-Chriss-style model. It also assesses participation in daily volume and produces liquidity and execution scores. These are estimates for checking a proposed stock basket before an order is placed, not a live order-book view or a promise about fills. PreTrAIde does not execute orders; users trade through their own broker.

Common mistakes

  • Treating every displayed share as available: visible orders can be modified, canceled or filled by someone else.
  • Mistaking one feed for the whole market: venue coverage and hidden liquidity limit what a screen reveals.
  • Equating the best ask with a whole-order price: an order larger than displayed size at that price may encounter other prices or receive a partial fill.
  • Assuming displayed depth predicts direction: the book describes current displayed interest, not where the stock price will go.

Frequently asked questions

What is the difference between Level 1 and Level 2 quotes?

Level 1 typically shows the best bid and ask and their displayed sizes. Level 2 shows additional displayed price levels and sizes, subject to the coverage of the data feed.

Do Level 2 quotes show every stock order?

No. Hidden orders are not displayed, and a feed may cover only certain venues. Displayed orders can also change before an incoming order reaches them.

Can Level 2 quotes tell me the exact price my order will fill at?

No. They show displayed prices and quantities at a moment in time, not guaranteed execution. The fill depends on order instructions, available liquidity, timing and the broker’s routing.

Related terms

Order book Order book is a record of currently available buy and sell orders for a security, organized by price and quantity, that shows displayed liquidity at a particular venue or across specified venues. Market depth Market depth is the quantity of buy and sell orders available at different prices in an order book at a particular moment. Bid-ask spread Bid-ask spread is the difference between the lowest displayed price to sell a stock (ask) and the highest displayed price to buy it (bid), measured per share. Partial fill Partial fill is the execution of fewer shares than an order requests, leaving a remaining quantity that may stay open or be canceled under the order’s conditions. Limit order Limit order is an instruction to trade at a specified price or better: a buy cannot execute above its limit, and a sell cannot execute below its limit. Liquidity Liquidity is the ability to buy or sell an asset promptly in the desired quantity without substantially moving its price or incurring excessive trading costs.

Execution & trading costs

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Educational content, not investment advice. PreTrAIde is analysis software, not a broker: it never executes orders, and its verdicts are decision support, not recommendations to buy or sell.