Financial quote
Encyclopedia
A financial quotation refers to specific market data
relating to a security
or commodity
. While the term quote specifically refers to the bid price
or ask price
of an instrument, it may be more generically used to relate to the last price which the security traded at ("last sale"). This may refer to both exchange-traded and over-the-counter
financial instruments.
for MSFT's book
with a bid of $28.00 and a bid size of 1000.
Level 2 information is of interest to traders and brokers because it indicates the buying and selling pressure behind individual securities.
Similar in format to live streaming share prices, a typical Level 2 screen is split in two vertical halves and will show orders on both the bid price of a security (left hand side) and the offer price (right hand side).
On major, heavily traded stocks the "depth" of the orders can quite often be in excess of 20/30 orders to both buy and sell at lower (left) and higher (right) prices.
Traders can use this information to predict the short-term movement of a share or security in conjunction with volume traded, and attempt to profit from this information, which is usually legal as the information is in the public domain. The reason for this is that Market Makers sit “behind” such a screen by being obliged to both buy and sell the share at the posted price up to what is known as normal market size.
For certain market centers such as NASDAQ, a full depth-of-book (DOB) is available, whereby every quotation for every market participant is displayed.
This type of quotation system is a step up from the Level I. Level 2 SEAQ provides real-time access to the quotations of individual market makers registered in every LSE SEAQ stock as well as the offering or bidding sizes that they will trade up to. This level of access gives the name of the market makers looking to trade the stock, and allows traders to see which ones are showing the most interest in a stock and identify the patterns for each one.
Market makers provide continuous bid and offer prices for each of the stocks they have on their 'books'. There can be as few as one or as many as 20 (or more) for a particular stock depending on the average daily volume; the more actively traded a stock is, the more attractive it is for them to deal in.
The market makers play an important role as catalysts, particularly for enhancing stock liquidity and thus generally for promoting long-term growth in the market.
They must maintain this continuous two-sided quote (bid and offer) at normal market size or greater at all times. This ensures that there is a buyer for the sell order and a seller for the buy order at any time.
Level 2 SETS
SETS (stock exchange electronic trading system) is an electronic order-driven system for trading the UK blue chip stocks including FTSE 100 and FTSE Eurotop 300 stocks. The SETS order book matches buy and sell orders on a price/time priority. On SEAQ (the quotes system that we looked at in a previous article) all buys and sells go through a market maker who acts as an intermediary.
The basis of SETS is that it directly matches willing buyers and sellers, creating efficiency in the markets by doing away with the intermediary of the market maker. This efficiency is true while the SETS system is populated by the most liquid and heavily traded stocks, but if matched bargains operate on less liquid stocks, waiting for a buyer to match with a seller could take hours, days or weeks. Because of the efficiency of the SETS system stocks traded tend to have narrow spreads so the cost of entry and exit from a position is much smaller.
As an ordinary 'punter' should you wish to buy or sell a SETS stock, your broker will invariably still trade through a market maker, who will not display separate prices but simply use the SETS Level 2 screen to indicate where the market lies.
Market data
In finance, market data is quote and trade-related data associated with equity, fixed-income, financial derivatives, currency, and other investment instruments. Market data is numerical price data, reported from trading venues, such as stock exchanges...
relating to a security
Security (finance)
A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...
or commodity
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
. While the term quote specifically refers to the bid price
Bid price
A bid price is the highest price that a buyer is willing to pay for a good. It is usually referred to simply as the "bid."In bid and ask, the bid price stands in contrast to the ask price or "offer", and the difference between the two is called the bid/ask spread.An unsolicited bid or purchase...
or ask price
Ask price
Ask price, also called offer price, offer, asking price, or simply ask, is the price a seller states she or he will accept for a good....
of an instrument, it may be more generically used to relate to the last price which the security traded at ("last sale"). This may refer to both exchange-traded and over-the-counter
Over-the-counter (finance)
Within the derivatives markets, many products are traded through exchanges. An exchange has the benefit of facilitating liquidity and also mitigates all credit risk concerning the default of a member of the exchange. Products traded on the exchange must be well standardised to transparent trading....
financial instruments.
Bid and Ask
The bid price (also known as the buy price) and the ask price (also known as an offer or sell price) of a security are the prices (and often quantities) at which buyers and sellers are willing to purchase or sell that security. The bid shows the current price at which a buyer is willing to purchase shares, while the ask shows the current price at which they are willing to sell. The quantities at which these trades are placed are referred to as "bid size" and "ask size." For instance, if a trader submits a limit order to buy 1000 shares of MSFT at $28.00, this order will appear in a market makerMarket maker
A market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread, or turn. From a market microstructure theory standpoint, market makers are net sellers of an option to be...
for MSFT's book
Order book (trading)
An order book is the list of orders that a trading venue uses to record the interest of buyers and sellers in a particular financial instrument. A trading engine uses the book to determine which orders can be fulfilled i.e...
with a bid of $28.00 and a bid size of 1000.
Level 1 Access
Level 1 quotations represent realtime bid/ask data, the most commonly displayed market data. Level-1 data typically will display the Best-Bid-Offer ("BBO" or "Inside Quote"), i.e. the lowest ask and highest bid available at the timeLevel 2 Access
Level 2 data displays the best bid and ask prices (also known as "top-of-book") for each market participant in a given security. In other words, at a given time there may be several market makers participating in trade matching for a specific stock. Level 2 data will display the highest bid and lowest ask for each individual market maker.Level 2 information is of interest to traders and brokers because it indicates the buying and selling pressure behind individual securities.
Similar in format to live streaming share prices, a typical Level 2 screen is split in two vertical halves and will show orders on both the bid price of a security (left hand side) and the offer price (right hand side).
On major, heavily traded stocks the "depth" of the orders can quite often be in excess of 20/30 orders to both buy and sell at lower (left) and higher (right) prices.
Traders can use this information to predict the short-term movement of a share or security in conjunction with volume traded, and attempt to profit from this information, which is usually legal as the information is in the public domain. The reason for this is that Market Makers sit “behind” such a screen by being obliged to both buy and sell the share at the posted price up to what is known as normal market size.
For certain market centers such as NASDAQ, a full depth-of-book (DOB) is available, whereby every quotation for every market participant is displayed.
UK Level 2
Level 2 SEAQThis type of quotation system is a step up from the Level I. Level 2 SEAQ provides real-time access to the quotations of individual market makers registered in every LSE SEAQ stock as well as the offering or bidding sizes that they will trade up to. This level of access gives the name of the market makers looking to trade the stock, and allows traders to see which ones are showing the most interest in a stock and identify the patterns for each one.
Market makers provide continuous bid and offer prices for each of the stocks they have on their 'books'. There can be as few as one or as many as 20 (or more) for a particular stock depending on the average daily volume; the more actively traded a stock is, the more attractive it is for them to deal in.
The market makers play an important role as catalysts, particularly for enhancing stock liquidity and thus generally for promoting long-term growth in the market.
They must maintain this continuous two-sided quote (bid and offer) at normal market size or greater at all times. This ensures that there is a buyer for the sell order and a seller for the buy order at any time.
Level 2 SETS
SETS (stock exchange electronic trading system) is an electronic order-driven system for trading the UK blue chip stocks including FTSE 100 and FTSE Eurotop 300 stocks. The SETS order book matches buy and sell orders on a price/time priority. On SEAQ (the quotes system that we looked at in a previous article) all buys and sells go through a market maker who acts as an intermediary.
The basis of SETS is that it directly matches willing buyers and sellers, creating efficiency in the markets by doing away with the intermediary of the market maker. This efficiency is true while the SETS system is populated by the most liquid and heavily traded stocks, but if matched bargains operate on less liquid stocks, waiting for a buyer to match with a seller could take hours, days or weeks. Because of the efficiency of the SETS system stocks traded tend to have narrow spreads so the cost of entry and exit from a position is much smaller.
As an ordinary 'punter' should you wish to buy or sell a SETS stock, your broker will invariably still trade through a market maker, who will not display separate prices but simply use the SETS Level 2 screen to indicate where the market lies.
External links
See also
- Market dataMarket dataIn finance, market data is quote and trade-related data associated with equity, fixed-income, financial derivatives, currency, and other investment instruments. Market data is numerical price data, reported from trading venues, such as stock exchanges...
- Stock ExchangeStock exchangeA stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...