When a trader can understand an order book on an exchange in depth, it shows that the trader has significant wisdom and transparency on stocks. This proves even more so on the supply and demand factor of said stocks. This allows them to improve their strategies and liquidity management.
People often have the misconception that Level 1 price data are merely reflections of the live best bid and offer, while Level 2 data are the best means to determine the market’s depth. It is also a misunderstanding that any display over the visible BBO is Level 2. However, Brandon Tepper, Head of Americas Sales in Nasdaq Global Information Services states that Level 2 simply display the top price level for every market participant in the execution system. This is based on Nadaq’s actual terminology. Tepper claims that Nasdaq Total View has full depth as opposed to Level 2, naming it a level 3 option.
Nasdaq Level 2 was introduced over 30 years ago for exchange participants, and is still accessible when it comes to tracking quotation positions and SEC/NASDAQ compliance. However, the Total View option exceeds the service by displaying the full-depth of the market at every price level, whether it be in NASDAQ-, NYSE-. NYSE MKT-, or regional-listed securities. The latter actually shows more than 18 times the liquidity of data in the Level 2 version.
“Level 2 is a legacy term – we want to raise people’s awareness that they can get better data using Nasdaq TotalView,” says Tepper.
The improved view provides a more powerful tool for investors and traders for P&L management. Advantages include the ability to follow pockets of liquidity, refine strategies, identify potential opportunities, and analyze patterns in the market.
The product has been present since 2003 and is considered NASDAQ’s premium equity data offering. Tepper says that it gives the most complete look in the Nasdaq trading system.
A key feature would be the Net Order Imbalance Indicator that serves like a supply/demand monitor. It shows imbalance information on specific stock in auctions, both at Market Open and Market Close. “With respect to the Market Open and Market Close auction, we are able to show, in near real time, what the interest is in a specific security. The NOII shows you indicative prices of where the cross is, but it also shows the depth of interest on either side,” according to Maguire.
He further explained that the NOII assists users in matters related to announcing earnings, in the case of imbalances on the buy or sell sides of a stock. Having relevant information on hand can help in decision making, like in situations where the NOII can reflect data used to determine the buying and selling opportunities of a share. It also provides different ways to analyze data and is not limited to information only on the day of the earnings announcement.
For example, if Apple was performing with a record quarterly profit of 18.4 billion US Dollars on its first quarter, the NOII would already have reflected to users how the markets were anticipating such an earnings announcement.
Furthermore, it can also be used by traders or investors to create an opportunity to offset imbalances reflected in NOII. They simply need to sell the said amount in auctions. The presence of the NOII allows them more possibilities and are assured by the certainty that their stocks will be in demand. Portfolio managers can also take advantage of the said services.
Typically, the earnings season experiences market volatility, with either positive or negative reactions to the announcements. Nasdaq’s offering allows users to have an idea on how the market will open and close and make the necessary preparations. The benefit of the package benefits hedge funds, brokers, dealers, and even retail investors as well. The mere fact that TotalView can produce such information assists entities in creating decisions based on visible supply and demand.
Borneman expresses his agreement by stating that he believes that “the overriding message is that TotalView gives users additional information. Information creates knowledge and that’s what people use to make decisions about trading. It gives people increased visibility and information on order flow and trading in the marketplace.”
Features available through TotalView include looking at earning announcements on shares in multiple cycles, including the performance of said shares and their output as opposed to their quarterly goals and expectations. TotalView can also reflect the difference in imbalances over different time series.
Overall, attaining additional information and getting a clear image on investments using the full visibility of Nasdaq’s TotalView can assist investors in analysis, forecasting, and decision-making.