My goal is that by the end of this video, you will have a complete understanding of what level two is and how to use it effectively in your trades. I'm also going to be discussing how level two is manipulated by the market makers in order to manipulate individual traders and retail traders into making decisions that aren't in their best interest. This is going to be an information packed video. So I highly recommend that you watch the entirety of this video if you're having trouble connecting the dots.

I will be tying everything in with a real world analogy because I know that there's a lot of different players when it comes to level two and I want to talk about exactly how everything breaks down all I ask for in return for this video is that you hit that beautiful like button. and if you see value in this video, you know, maybe comment something below because it helps us a lot with the YouTube algorithm. And also don't forget to subscribe for more short, sweet and simplified videos on how to create the stock market. Okay to start: if you're using thicker swim, all you need to do in order to open up level 2 is to push L2 in the right corner.

We have the market maker category, the bid price, the bid size, the ask price, and the asking size. So level 2 is made up of market makers who provide the liquidity that allows us as traders to trade within the market since they are required to buy when nobody else is buying and sell when nobody else is selling. they essentially make the market and hence the name market maker. Every stock has a top dog market maker which trade is referred to as the acts of market makers.

The reason it's important to identify the acts is because these are the market makers that dominate the price action and typically result in a higher probability of success. Within the market. And the left we have where people are buying and on the right we have where people are selling. So from our perspective, if I'm buying a stock on a lemon order meaning I'm specifying that price that I'm willing to pay for a share and telling me broker not to execute unless it's at that price.

That means I'm bidding a certain amount to buy a stock and that would put me in the left category on the buyer side. So the bar side is a list of those who have been a certain amount but haven't yet been filled by a seller. The seller slide shows the price at which the seller is willing to sell their shares to a buyer. So in other words the left side is the price buyers are willing to pay and n the right side is the price sellers are willing to sell and when you place a market order, you get executed at whatever level price the market price is at.

Now the reason that level two can be useful is because if there are a large amount of buyers, that means that the price will spike up, and if there are a large amount of sellers, that means the price will spike down. but it's not as black and white as traders often make it out to be. The reason for this is because the market makers in their automated systems that match buy and sell orders allow traders to post reserved orders and hidden orders. Now reserve orders allow for the hiding of the size of an order, but you'll still see the order on level two.

It's just that the order will be displayed much lower than it actually is. For example, an order of 500 shares may say 100 and that could totally spoof the price. The way they do this is by placing an order at a much smaller position size and then fill it at a much higher one. And they know that if you can't see the real size, you won't have as accurate of an image of what's actually going on behind the scenes and that could stop you and other traders from executing and driving the price more over Market Movers also execute hidden orders which make their executions completely invisible to level 2.

Now this makes sense. It makes sense that large institutions and traders would want to hide their positions in order to avoid influencing the stock price. If you see them place a large amount of buy orders, then you know there is a certain level of price, strength about to occur and others would as well. And that would mean that the institution would be buying into a much faster increase in price.

Okay, so that makes sense, but this is where it gets interesting sets. Market makers know that a lot of traders utilize level 2. This creates an opportunity for them to use it to their advantage. Now you might be asking yourself, Well, why is it that these market makers with the purpose of providing us with the liquidity that are needed for our trades are trying to manipulate our actions as well? Well, these market makers aren't doing this out of the kindness of their heart, but rather because they are also trying to make money.

So we just went over how market makers often hide their orders so as not to tip off traders and algorithms watching level 2 because that could potentially influence the share price and hurt their own execution. But they also have ways to actually manipulate level 2 in order to convince you the trade or to buy or sell a share to their own benefit without you even knowing. They do this by flashing huge bids that are not real but are flashed in order to drive the price up because a lot of traders will see them and assume that the bid price is rapidly Creason and that they can make a profit. Likewise, you may see short sellers flash huge sell orders in order to move the price down.

Now, these orders don't mean that the buy or sell orders actually going to go through, but it does serve to boost the price in a direction that the market maker wants it to go. Thus, it's important to watch for this spoofing on level 2. So this is pretty intuitive. But I Want to give you an analogy that you can remember: Don't say you're in an auction and you're selling a bunch of limited edition replica paintings that everybody in the room wants to buy, but each have a different price that they are willing to buy at.

If you're the only seller in a room full of buyers and you're aware that everyone else in that room wants to buy that painting, you're going to feel a lot more confident about your ability to sell it and will reject low prices in favor of be higher ones. Now, this naturally pushes the price up. Now on level 2. when a bunch of people are buying a stock, this creates a wall of buyers which will create try strengths for a trader to buy into.

But the problem is that as you buy and other people buy in, the shares are getting more and more expensive. Eventually there's a point where people who have recently bought the shares are like whoa, this price has gotten so high that now I am willing to sell with supplying the man. You have to understand that while people have all different levels of dedication holding a stock, there's a price point at which everybody is willing to sell. And as a stock price goes up, this triggers more and more people to sell.

Now going back to my painting analogy. imagine if the person selling the painting could stack the room with fake buyers who shout out high numbers at the auction in order to learn potential buyers into increasing their bids as well. Now imagine another auction where people are bidding and a few people go up on stage and whisper their offer to the auctioneer. The rest of the crowd know nothing about that offer.

what is if it's higher or lower than the actual price, but they know that an offer is being made well. This is how Level Two works, and you can't easily distinguish between serious executions and spoof ones and you can't often figure out you know what's going on behind the scenes of a hidden or reserve order. But you can still see the overall supply and demand of the stock that's happening in real time. The demand that the stock is experiencing is in the left column and they supplies in the right column.

If we see more demand, overall, the price shoots up. If we see more supply, overall, the price shoots down. Likewise, the reverse is also true, so knowing this can give you an edge in trading. In conclusion, Level 2 offers you an opportunity to get an in-depth view of the liquidity within the market.

For the stock that you were trading, it's not completely necessary to use, but it's good to have this in your toolbox, and there are many opportunities where it could be hugely beneficial for you to use this, but defend yourself with the knowledge that market makers will manipulate Level 2, to your dismay if you let them. Anyways, if you have more questions, comment below or join our free Facebook group, zip Praetor Circle. It's a great place to get your questions answered. And I post nightly walks loose videos, so check that out if you're interested.

Anyways, have a good day folks and I'll see you in the next video.