What is th diff between L1 and L2, and do I need L2? - futures io
futures io



What is th diff between L1 and L2, and do I need L2?


Discussion in NinjaTrader

Updated
      Top Posters
    1. looks_one NQturnal with 2 posts (9 thanks)
    2. looks_two trendisyourfriend with 2 posts (4 thanks)
    3. looks_3 bobwest with 2 posts (6 thanks)
    4. looks_4 SomePsychoDude with 2 posts (2 thanks)
      Best Posters
    1. looks_one artemiso with 5 thanks per post
    2. looks_two matthew28 with 5 thanks per post
    3. looks_3 NQturnal with 4.5 thanks per post
    4. looks_4 bobwest with 3 thanks per post
    1. trending_up 935 views
    2. thumb_up 38 thanks given
    3. group 9 followers
    1. forum 14 posts
    2. attach_file 1 attachments




Welcome to futures io: the largest futures trading community on the planet, with well over 150,000 members
  • Genuine reviews from real traders, not fake reviews from stealth vendors
  • Quality education from leading professional traders
  • We are a friendly, helpful, and positive community
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts
  • We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

(If you already have an account, login at the top of the page)

 
Search this Thread
 

What is th diff between L1 and L2, and do I need L2?

(login for full post details)
  #1 (permalink)
Shaun1906
Dallas, Texas
 
 
Posts: 2 since Dec 2022
Thanks: 7 given, 1 received

Hello, all.

I'm new at trading. I've been on sim for a couple of months. I have NT8, and currently use Level 1 data. I'd like to know what the difference is between Level 1 data & Level 2 data, and whether or not I should (or need) L2?
If anyone can help me with this, I would greatly appreciate it.
Thank you.

Reply With Quote
The following user says Thank You to Shaun1906 for this post:

Can you help answer these questions
from other members on futures io?
Multi Time Frame High/Low/Median levels
NinjaTrader
Anyone ever use "Seasonax" website?
Trading Reviews and Vendors
Book for fundamental analysis
Stocks and ETFs
Tradovate + Jigsaw issues
Tradovate
Market on Close data within IB
Platforms and Indicators
 
Best Threads (Most Thanked)
in the last 7 days on futures io
Is anyone actually making money?
52 thanks
An embarrassing, honest confession
40 thanks
Sierra vs. Ninja : why I chose .....
9 thanks
Demo accounts order fill
6 thanks
Rithmic vs Denali - Market Depth Difference
6 thanks
 
(login for full post details)
  #2 (permalink)
 bobwest 
Site Moderator
Sarasota FL
 
Experience: Advanced
Platform: Sierra Chart
Trading: ES, YM
 
bobwest's Avatar
 
Posts: 7,682 since Jan 2013
Thanks: 55,223 given, 25,271 received


Shaun1906 View Post
Hello, all.

I'm new at trading. I've been on sim for a couple of months. I have NT8, and currently use Level 1 data. I'd like to know what the difference is between Level 1 data & Level 2 data, and whether or not I should (or need) L2?
If anyone can help me with this, I would greatly appreciate it.
Thank you.

Can someone give @Shaun1906 a hand with his question?

Thanks.

Bob.

When one door closes, another opens.
-- Cervantes, Don Quixote
Reply With Quote
 
(login for full post details)
  #3 (permalink)
 SomePsychoDude 
Genova.Italy
 
Experience: Beginner
Platform: TradingView/MT4/rtrader
Broker: roboforex
Trading: setups
 
SomePsychoDude's Avatar
 
Posts: 271 since Mar 2021
Thanks: 165 given, 155 received


Those fancy levels don't matter at all nowadays. it's a futile thing to even bother with those levels.
The important number is what is avg. daily volume of a particular futures contract.


In stocks/crypto example, you need to check it to be able to sell it very quickly. If stock/crypto is trading 40k shares a day on average you buy 2k (5% of avg. daily volume) shares at max.

But levels, lmao, just forget it exists.

It mattered in the 1970s before algos kicked in.

Reply With Quote
The following user says Thank You to SomePsychoDude for this post:
 
(login for full post details)
  #4 (permalink)
 matthew28 
United Kingdom
 
Experience: Beginner
Platform: Bookmap
Trading: US Equity Index Futures
 
matthew28's Avatar
 
Posts: 1,237 since Sep 2013
Thanks: 3,413 given, 2,495 received


Shaun1906 View Post
I'd like to know what the difference is between Level 1 data & Level 2 data, and whether or not I should (or need) L2?

Simple charts showing price and indicators such as moving averages, MACD and so on use level 1 which is current price, transacted volume and the inside bid and offer. Level 1 is also fine for footprint type charts, volume profile and TPO/market profile charts.

Level 2 is the extended order book as well on top of what level 1 provides. You only really want more than the level 1 inside bid and offer if you are trading off a DOM and want to see further out from current price, or especially if using a heatmap style chart like Bookmap, great now that some markets like the ES and NQ have full extended depth so you can accurately see if levels of liquidity have been waiting to trade for a while or have just flashed in and out.

So level 2 isn't essential as you will know from sim trading for a couple of months without it. Be careful if you do decide to add level 2 that you don't completely throw out all your old knowledge and start doing something totally different because changing methodology frequently can mean your learning level goes back to the beginning slowing progression.

Having said that of course, when you start trading it is the ideal time to try different markets, trading tools, styles of trading, trading times (European session, US open, US morning or afternoon), and see what you like and what makes logical sense to you as to why it should be able to work. Then stick with that and build your knowledge and experience and time of use with those methods and tools.

You do not win as a trader, you just get to play again the next day. If that game doesn’t appeal to you then you should not trade. Gary Norden
Visit my futures io Trade Journal Reply With Quote
The following 5 users say Thank You to matthew28 for this post:
 
(login for full post details)
  #5 (permalink)
 SomePsychoDude 
Genova.Italy
 
Experience: Beginner
Platform: TradingView/MT4/rtrader
Broker: roboforex
Trading: setups
 
SomePsychoDude's Avatar
 
Posts: 271 since Mar 2021
Thanks: 165 given, 155 received

So yes, short answer, forget it exists.

Reply With Quote
The following user says Thank You to SomePsychoDude for this post:
 
(login for full post details)
  #6 (permalink)
 bobwest 
Site Moderator
Sarasota FL
 
Experience: Advanced
Platform: Sierra Chart
Trading: ES, YM
 
bobwest's Avatar
 
Posts: 7,682 since Jan 2013
Thanks: 55,223 given, 25,271 received


Shaun1906 View Post
I'd like to know what the difference is between Level 1 data & Level 2 data, and whether or not I should (or need) L2?


matthew28 View Post
Simple charts showing price and indicators such as moving averages, MACD and so on use level 1 which is current price, transacted volume and the inside bid and offer. Level 1 is also fine for footprint type charts, volume profile and TPO/market profile charts.

Level 2 is the extended order book as well on top of what level 1 provides. You only really want more than the level 1 inside bid and offer if you are trading off a DOM and want to see further out from current price, or especially if using a heatmap style chart like Bookmap, great now that some markets like the ES and NQ have full extended depth so you can accurately see if levels of liquidity have been waiting to trade for a while or have just flashed in and out.


SomePsychoDude View Post
So yes, short answer, forget it exists.

Thanks for the responses so far.

I have not added anything to this thread because I don't trade anything but the price chart -- not even volume -- and so I don't know a thing about either L1 or 2, except that I've read the terms and I know that some people do use them. Of course, people use all sorts of things, and sometimes what is a total bust for one is an essential and winning tool for another. Also, sometimes you've just tried what you have tried and you liked it, which is where I am. I didn't look much further and don't use much else.

But since there are traders who do, and who apparently find some value there, can we get some additional discussion from someone who has either (1) used L2 profitably and/or (2) tried it and given it up. Reasons for either would be good.

Remember that the OP, @Shaun1906, is asking both what these levels are, and whether they are useful. The useful/not-useful question is obviously going to be dependent mostly on the trader's approach, experience and opinion, so probably there are many possible responses. So what is useful for one may be irrelevant for another, which is why reasons/explanations would be good.

Bob.

When one door closes, another opens.
-- Cervantes, Don Quixote
Reply With Quote
The following 6 users say Thank You to bobwest for this post:
 
(login for full post details)
  #7 (permalink)
 trendisyourfriend 
Legendary Market Wizard
Quebec
 
Experience: Intermediate
Platform: NinjaTrader wt Rancho Dinero's profiling tools
Broker: AMP/CQG
Trading: ES, NQ, YM
 
trendisyourfriend's Avatar
 
Posts: 4,307 since Oct 2009
Thanks: 3,981 given, 5,691 received

A few more pointers about this topic:

Confused about Tick vs Bid vs Ask vs Last

Indicator: Using custom events to output the current Level II data book

you can directly access Level1 and Level2 data in NinjaScript

Six Powerful Tools to Monitor Order Flow Activity

The only Order Flow+ indicator that requires Level II market data in order to function correctly is the Order Flow Market Depth Map. All the other indicators will work just fine with Level I data on your account. I have provided a help guide below which gives more information on the Order Flow+ indicators.

https://ninjatrader.com/support/helpGuides/nt8/NT%20HelpGuide%20English.html?order_flow_plus.htm

Reply With Quote
The following 3 users say Thank You to trendisyourfriend for this post:
 
(login for full post details)
  #8 (permalink)
 NQturnal 
Moe, AU
 
Experience: Advanced
Platform: NinjaTrader, X-Trader
Trading: Futures, Stocks, ETFs, FX
 
NQturnal's Avatar
 
Posts: 9 since Oct 2009
Thanks: 3 given, 23 received

As you're new to trading (welcome), the attached image below might help visualise L1 vs L2 as others have said (sorry if obvious, I never assume anything especially for those that are new).

On the topic of what the differences are, matthew28's post summed it up well.

On the topic of whether you should use it or need it, I utilise both in my trading, algorithms and in managed funds so can shed some light for someone new.

1. There is a perception that working with orderbook data (i.e level 1, level 2 and full order book bid/ask depth) is more difficult than working with price and volume data (OHLCV). This really comes down to you the individual, where you see and find patterns and how far down the rabbit hole you wish to go (what tickles your fancy). I have seen guys gravitate to one or the other and been very successful with both.

2. Level 1 can also be a great place to start for orderbook trading. There is plenty of info that can be derived from the top of book i.e best bid/best ask; especially if you're interested in very short term strategies, have an interest in algorithmic trading or have a background in programming.

3. As per the pic above- Level 2 simply affords you the ability to extend what can be worked, analysed or manipulated with level 1 by giving you an additional 9 bid/ask levels (10 levels is generally the minimum bid/ask levels for level 2 data; although some liquidity providers also only offer 5 bid/ask levels in other asset classes).

The number of levels beneath/above the market is what's referred to as market depth.

And so ultimately this may pose or lead you to the next question (pls correct if wrong):
"Should I be using market depth, yes/no?"

Again ultimately that will come down to a number of things such as (but not limited to):
- What you gravitate to
- Where your knowledge comes from
- Who you find as mentors
- What type of trader you would like to be
- What type of markets you wish to participate in
- What type of strategies you wish to trade/deploy and on
- What timeframes/investment horizons.

As you go along in this wonderful rabbit hole of trading, you will learn about tech requirements and challenges and that too may become a contributing factor to all/any of the above.

Without getting too deep at this stage, i'll wrap it up by saying:

a) I traded with many guys over the years who had very little technical knowledge (i.e not knowing what Elliot Wave was, let alone a MACD). They started with market depth and remain in the orderbook to this day. The same applies vice versa, as bobwest said.

b) Most people will learn technicals first (OHLCV, indicators, any non-orderbook info on a price chart) as that is all very accessible these days.
Over the last 15yrs, lower level market depth and orderbook info has become more accessible to the public.

As someone who uses all the aforementioned data points (OHLCV, L1 & L2) in discretionary and quantitative settings with both manual & algorithmic execution, its about using the right tool for the right job.
- L1 is excellent if you just need a OHLCV price feed, require basic fill execution depth at 1 level and any other calculations at the top of book
- L2 provides everything L1 does above, in addition to an "orderbook" should you wish to look for patterns & behaviours; learn about liquidity, and of course staggered price/volume/liquidity weighted execution in advance.

I hope that provides some context.

Attached Thumbnails
Click image for larger version

Name:	dom.jpg
Views:	43
Size:	333.0 KB
ID:	329166  
Reply With Quote
The following 4 users say Thank You to NQturnal for this post:
 
(login for full post details)
  #9 (permalink)
RichSteps
Miami, FL
 
 
Posts: 15 since Jun 2022
Thanks: 0 given, 7 received

Level 1 market data refers to the most basic information, such as its bid and ask prices and the size of the bid and ask orders. Level 2 market data, also known as depth of market data, includes Level 1 data but provides additional information, such as the orders that make up the bid and ask prices and the number of shares being bid or asked for at each price level.

The main advantage of Level 2 market data is that it provides more information about the supply and demand, which can be helpful for traders who use technical analysis or algorithmic trading strategies. It also allows traders to see where the big players are buying and selling, which can be helpful for gauging market sentiment.

The main disadvantage of Level 2 market data is that it can be more expensive to access than Level 1 data. The extra data may be overwhelming for some traders, especially those new to the market.

Reply With Quote
The following 3 users say Thank You to RichSteps for this post:
 
(login for full post details)
  #10 (permalink)
 artemiso 
Legendary Bought TSLA at 880
New York, NY
 
Experience: Beginner
Platform: Vanguard 401k
Broker: Yahoo Finance
Trading: Mutual funds
 
Posts: 1,150 since Jul 2012
Thanks: 774 given, 2,671 received


It's an outdated terminology and I dissuade using it because of its inconsistent application and the amount of context you'll need to provide when using it in any communication.

L1 is less contentious. Most people assume it to be synonymous with trades and top level quotes, TAQ, or top of book. This definition is anchored by the fact that there are many trading venues that offer TAQ feeds.

There's less agreement on what L2 means.
  • Most assume it to refer to market-by-price (MBP) data. Other common terms for this include summary depth, price book, quotes (including outside of top of book). MBP is most easily distinguished by the limit in number of visible levels, with 5, 10, 25 and 50 being popular values for such limits. This is the orthodox definition of L2.
  • Some firms assume this to mean market-by-order (MBO) data. MBO is most easily distinguished by the fact that it covers all levels of the order book. This is the more unorthodox definition of L2.

The worst is "L3". This terminology is completely unorthodox. Stay far away from whoever uses it.

Here's an excerpt (written by me) that you might find useful.


Reply With Quote
The following 5 users say Thank You to artemiso for this post:


futures io Trading Community Platforms and Indicators NinjaTrader > What is th diff between L1 and L2, and do I need L2?


Last Updated on February 4, 2023


Upcoming Webinars and Events
 

NinjaTrader Indicator Challenge!

Ongoing
     



Copyright © 2023 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, Ph: +507 833-9432 (Panama and Intl), +1 888-312-3001 (USA and Canada), info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts