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Why Penny Stock Traders Need Level 2

 Why Penny Stock Traders Need Level 2

In the world of electronic trading there are 3 Levels of access Level 1, Level 2, and Level 3. Their value to the trader goes in the following order Level I is the least valuable and Level III being the most. Since we are not part of an NASD firm we can forget about getting Level 3 access so let’s focus on Level I and II.

Level 1

This is the type of quote that is most often published as a “real time quote” you will see Level 1 quotes on yahoo finance or other popular financial websites. Level one contains real time bid/ask quotes. This type of access is particularly   useful to a penny stock trader due to the fact that it does not let you know exactly who is bidding or asking for the stock and how many shares the Market Makers are looking to trade. This is favorable for Market Makers because now your order can be passed around or held until they can profit from it. This is one of the ways market makers earn a profit. If you’re a serious penny stock trader then you should not be relying on Level 1 quotes at all.  Trading penny stocks relying solely on Level 1 access is like trading blindfolded.

Level 2

Level 2 access gives the trader a much deeper look into the trading action of a given stock. The main benefit of Level 2 is that it give you access to the best bid/ask price for all the market makers trading that stock. This information is vital because by looking at what each market maker is bidding or asking for a stock you can get a clear idea of what that stocks resistance or support levels are. By knowing what price the market makers are looking to buy and sell at you can make a more informed decision on how many shares you should buy or sell and at what price to buy and sell at.

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