Level 2 Quotes

Just a basic question about how can Level 2 quotes help me further in understanding the current price action in Forex Markets. For example, lets look at the attached picture.

Llooking at the USD/JPY rates, will it be correct to say that if Ask Size > Bid Size, then price on next tick will likely go up, and vice versa?

Also, the colume numbers quoted at various price levels, are these stops/limits placed by various traders?


I'm just trying to understand how can this information be useful, considering that this doesn't represent the volume of the entire forex market but just with my broker.

I have traded the book, mostly in futures.

From that chart it looks like the price will fall once the first level starts to shift.

Basically, it takes longer to fill a price if theres higher volume on it (providing there is not sufficient volume to fill the entire amount.

If it takes a long time to fill, you will find that the people with the volume in line on the sell side will shift to spot price in order to trigger the stops on the buy side.

But given how even it is, the movement will be very small (1 tick).

Given the huge liquidity on FX, its hard to trade the book because 1) The spot volume is huge and 2) There are no limit order manipulators.

Its almost very random trading the book on FX. Unless you can come up with a strategy to trade between the spread (where you offer better price fills to someone at small volume) and scalp the ticks. But it can bash you if someone goes other way.

Spot FX is an OTC market - unless you're in major marketmaker's position there's no way to see the whole order flow. What you see now is just a tiny fraction that would only delude you. If you want to trade Level 2 go trade something on a regulated exchange where you can see the real orderflow.

Just my 2p.

Regards
S