Level II quotes

My broker offers Level II quotes for currency pairs. My instinct tells me that this should be powerful information, but I have absolutely no idea what to do with them. Occasionally I pull them up when I'm in a trade just to see the open orders that are hanging out there, but I'm not doing anything meaningful with this data.

It seems that any serious day trader in the traditional stock market would not be caught dead without a Level II provider. However, I never hear anything mentioned about this in forex.

Does anyone here actively use Level II quotes in their trading process? If so, could you please give me some guidance on how they can be used?

http://www.forexfactory.com/showthread.php?t=10078

As far as I know, the only purpose for Level II quotes are for those who scalp... and usually for only a few ticks/pips. They're most popular amongst e-mini futures traders, and those who trade by it often use the term "reading the tape"*. I never got into L2 quotes when I dabbled in futures a couple of years ago, but I think the theory is that if there are more outstanding open orders on one side than the other (ie: the orders above and below the current price), the market is biased in that direction.

You could also look at the bid/ask sizes of the current price, but these usually fluctuate so quickly (at least with futures), that you need nerves of steel to trade this way. Not only that, but some traders will flash an absurd size of contracts/lots (ie: 1000 contracts on the E-mini S&P, which can range in margin cost of $500k to $1.2 million, depending on your broker), just to see if it is enough to drive market in a certain direction. Usually, these huge orders click on and off in less than three seconds.


* This term came about from back in the old days, when several traders became successful by trading like a floor trader: the only data they had were the streaming quotes of the latest orders that were filled. A long, long time ago, this data was on a ticker tape.

This might be of some help to you....

http://www.investopedia.com/articles...vel2Quotes.asp

Thanks for the info. I'm comfortable in my knowledge of what Level II quotes are. I guess I'm asking whether there is anyone here who actually manages to incorporate them into their trading strategy, e.g. "When X happens on my charts I look at the Level II quotes and if I see condition Y I do/don't place the trade." I really doubt that anyone does this, but I was just curious.

As has already been pointed out in this thread, the quotes usually move very fast and it can be very difficult to make any meaningful trading decisions off them. Furthermore, even though I am seeing SOME Level II quotes, I know that I must not be seeing ALL the forex Level II quotes because forex does not have a centralized exchanged. That means that I can only see the Level II quotes that are present on the ECN into which I am currently tied.