Electronic Trading: Level I, II and III Access

There are a variety of ways in which Nasdaq quotes security prices to the public. These levels vary on the amount of information and access they provide to investors.

Level I
This type of quote is most often published on the net as a "real-time quote." Level I consists of real-time bid/ask quotes for securities trading on the Nasdaq stock market. This type of access does not disclose who is bidding or asking for the stock, and it does not show how many shares the market maker is looking for. Real-time quotes show the current quote, but it may be from a different lot than what you are trading. Market makers love clients with this type of access because it doesn't show you the order sizes, and therefore your order may be passed around or held until market makers can profit from your order.

Level II
This type of quotation system is a step up from the Level I. Level II access provides real-time access to the quotations of individual market makers registered in every Nasdaq-listed security as well as the offering or bidding lots that they are looking for. This level of access also gives the name of the market maker looking to trade the stock. It allows traders to see what market makers are showing the most interest in a stock and to identify the patterns for each market maker. Level II access is available over the internet - but at a cost. This can range in the hundreds of dollars per month depending on the company. For clients placing a large number of trades, the firm may waive the access fee because they will make up the costs on your commissions.

Level III
This is a trading service consisting of everything in Level II plus the ability to enter quotes, execute orders and send information. This service is restricted to NASD member firms that function as registered market makers. Level III allows you to enter bid/ask quotes as the trades are being executed right in front of you. It is the fastest way to execute a trade and is typically found only on the trading floors of brokerage firms and market makers.