Level 2 trading is a popular way of trading UK shares because Level 2 shows the order book for every single UK-listed share at any given time. Therefore you can quickly view how many buyers and sellers there are on each side of the order book. So how can you use this information to successfully trade UK shares?

Well first and foremost the number of orders and their respective quantities of shares gives you a good indication of the future price movement of a share. This is because if there are more buyers than sellers on the order book then you would obviously expect the price to move up in the near future, and vice versa.

Level 2 allows you to view live streaming prices and shows you exactly what’s happening on the order book continuously throughout the trading day. However with that being said, it’s not necessarily as easy as that otherwise everyone who uses Level 2 would be very wealthy.

One of the main problems, and a common annoyance amongst traders, are market makers. These people can effectively control the order book, particularly on smaller stocks where they essentially make up the order book. So they can easily raise and drop their order prices and move a company’s share price, even without any orders being placed.

They even have a significant impact on the larger shares, although to a lesser extent because there are a lot of other orders on the order book from ordinary traders as well. In fact these other people can also be a problem because due to the fact that anyone with direct market access can place orders onto the order book, it means that there is a lot of market manipulation going on.

For instance it’s very easy to place a large trade 1 or 2% away from the current market price in order to encourage traders into either buying or selling. Of course the person does not want to see this order get taken out, and will remove this order straight away if it looks like getting taken out. It’s only purpose is to give the illusion that there’s a large buyer or seller in the wings in order to influence other traders.

So these are just a few of the problems you will come up against when using Level 2. It is unquestionably a useful tool and can be a useful tool for predicting future price movements in a lot of cases, but it’s certainly not a foolproof way of making money from UK share trading.

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