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From my understanding on the definition of Level 3, and according to Investopedia, it is:
• Level 3 quotes provide all the information and services of level 1 and level 2 quotes.
• In addition, level 3 quotes also grant an investor the ability to enter or change quotes, execute orders, and send out confirmations of trades.
• These types of quotes are reserved for registered (to National Association of Securities Dealers (NASD) member firms) brokers and financial institutions. Market makers, for example, participate in level 3 quotes, which allows them to execute customer orders.
However, I have also read another post on internet, saying that Level 3 equals 20 depth of bid/ask data. Does it mean with enough market depth displayed, it can be called Level 3?
Hi,
honestly it's the first time I hear about "level 3", I had no idea it existed and I can't understand what it really is. I read the article in investopedia, but I cannot really understand what they mean with "level 3 quotes also grant an investor the ability to enter or change quotes, execute orders, and send out confirmations of trades".
I will tell you something: years ago I was really in love with level 2, I wanted to see as much depth of market as possible, I wanted 300 levels, that is much more than the usual 10 levels bid and 10 levels ask.
Now I trade with level 1, I don't even care what the bid and ask is, and I don't care about iceber orders or big orders sitting on the ladders etc....
The result is that now I make much more money and I understand market better. Years ago I paid 100+ USD per month to have the datafeed I liked, now I pay 6.50 USD.
If you are just starting out in trading, don't over complicate your life.
Ninjatrader caps the depth of market at 10 on each side but there is much more out there, Sierra with Denali will show you full market depth with the standard level 2 depth of market from the CME.
Some data providers are now offering Market by Order data that the CME now offers, though NinjaTrader has not yet stated they will be offering it.
