If there's one thing investors love to spew, it's the phrase "do your due diligence." It's so popular that you will often see market advice-givers keep the phrase in their social media bios, as a sort of "my thoughts are my own'' liability protectant. One way to up your research game is by reading level two market data on Robinhood.
In tandem with none other than Nasdaq, Robinhood helps retail investors better understand the ins and outs of the ever-changing market.
What is level 2 market data on Robinhood?
This feature has been around since 2019 and is available to Robinhood Gold members. In addition to showing bid and asking prices for particular stocks, Robinhood's level 2 market data displays:
- Aggregated quantities at individual bids (a "bid" is a limit buy order that other investors have open)
- Aggregated quantities at individual asks (an "ask" is a limit sell order from other investors)
This data isn't market-wide. Instead, it centers around the Nasdaq Exchange.
How to read level 2 market data on Robinhood
The level 2 market data basically acts as an "order book" of sorts. Seeing the open orders lets you make a more informed estimate about which direction the price of a stock is headed (up or down) and by how much. By analyzing trends in numbers, you are learning a lot more about the current state of a stock than you would if you just view the best bids and asks available.
The data is presented as a chart, with the left-hand side representing open buys and the right-hand side representing open sells. Smack dab in the middle of the chart is the stock's current market value. Comparing open orders on either side of the spectrum is extremely helpful in this context.
You will find these important details on the data:
- Market maker (the person who placed the order)
- The price at which the order was placed
- Number of shares in the order
How level 2 market data can help improve your investing strategy
It's generally better to be more informed, regardless of what part of life you are referring to. This is especially true when it comes to investing (like Warren Buffet says, invest in what you understand).
Robinhood is super user friendly and may even over-simplify certain types of investing (like options trading, for instance). Despite the fact that this data is only available to Robinhood Gold members, it's a good tool to keep in your toolbox (if you can swing the $5 monthly fee plus margin interest). Oftentimes, day traders like to use data like this — but it isn't just relevant for that high-risk investing style. Options traders and swing traders also find great use in the level 2 market data from Robinhood.
Whatever your preference, one thing is true. With more information on a stock's short-term price action, you will hopefully be better inclined to make more profitable moves.