Module 1 · Lesson 6 of 9 · Foundations · About 5 minutes
Reading a Quote: NBBO, Level 1 and Level 2
On this page
Before you read: How Markets Work: Bids, Asks, Spread and Liquidity
What you will learn
- What a Level 1 quote shows: bid, ask, sizes, last price and volume.
- What the NBBO is for US stocks and why it can differ from one venue’s quote.
- What Level 2 data adds, and what it leaves out.
What is on a Level 1 quote?
What do the few numbers next to a symbol actually mean?
A Level 1 quote shows the best bid and best ask, the size available at each, the last trade price and size, and the day’s volume, high and low. In a fictional quote, bid 50.10 × 3 and ask 50.12 × 5 mean buyers show 300 shares at 50.10 and sellers 500 shares at 50.12, when sizes are shown in round lots of 100. Size units vary by data feed.
The example explicitly assumes size is in 100-share units: 3 means 300 shares and 5 means 500 shares. That is a data-format assumption, not a rule that every current stock has a 100-share round lot or every vendor uses lots. The current NMS round-lot definition is price-tiered using prior evaluation-period prices; check the assigned lot/units rather than inferring them from a current last trade alone.
What is the NBBO?
US stocks trade on many venues. Whose bid and ask is “the” quote?
For US NMS stocks, the NBBO is the highest eligible displayed bid and lowest eligible displayed offer in the applicable consolidated national quote framework. It is not a census of every order or a promise of the best executable price anywhere. Eligible quotation/round-lot rules matter; odd-lot information and hidden liquidity are distinct. Better-priced odd-lot orders can be reported separately without simply making the published NBBO a list of every possible small-order price. Do not teach that all odd-lot information is universally invisible either: rules and dissemination are evolving, and vendor access/display can differ.
A single venue’s quote is not necessarily the national quote. A feed’s timestamp, aggregation, delay and covered venues matter, and quotes can change before an order arrives. This short definition does not establish a broker’s best-execution compliance, all protected-quote exceptions, or which regulatory implementation phases a particular feed has completed. The current quoted spread 50.12−50.10=$0.02 still describes the stipulated example, not guaranteed execution.
What does Level 2 add?
How much is waiting just below the best bid?
Level 2 shows selected displayed price levels and quantities, sometimes grouped by venue/participant; coverage and units depend on the product/feed. A fully hidden order can be absent from the displayed book; an iceberg/display-quantity order can show a visible tip while its reserve remains hidden.
Fictional example: total desired order 1,000 shares, displayed tip 100. The book initially reveals 100, not 1,000; 900 remain undisplayed. Under a stipulated 100-share replenishment illustration, after that tip fills there are 900 remaining, then a new 100 tip with 800 reserve. Actual replenishment/priority rules are venue-specific; the book alone need not reveal the total or prove one owner is refilling. Displayed orders can also change/cancel. See Order Flow Basics: DOM, Time and Sales, Delta and Reading the DOM Honestly: Spoofing, Icebergs and Hidden Size rather than treating an iceberg as an entirely invisible order.
Quote diagram
Read the diagram step by step
- Size convention ONLY for this example
- 100 shares per displayed size unit ONLY for this example; bid 300 shares/ask 500.
- Displayed quantity: can include iceberg TIP; reserve/fully hidden size not shown.
- The hidden reserve is not measured by displayed depth.
- SEPARATE schematic · shares
- Not an assertion of hidden size in the ladder.
- Fictional Level 1/Level 2 book uses explicit 100-share units. Visible iceberg tip can appear; the hidden reserve is not measured by displayed depth. NBBO eligibility is not all possible liquidity.
Illustrative diagram constructed for teaching. Not real market data.
Fictional Level 1/Level 2 book uses explicit 100-share units. Visible iceberg tip can appear; the hidden reserve is not measured by displayed depth. NBBO eligibility is not all possible liquidity.
What this does not tell you about quotes
- Where price will go next.
- Hidden size or intentions behind displayed orders.
- Your broker’s data source or delay. Check whether a quote is real-time or delayed.
- Nothing here suggests any trade.
Watch the lesson explained
Check yourself
- Does Level 2 show none of an iceberg? Hint: hidden size.
- Does NBBO mean every possible order price anywhere, including hidden liquidity?
- In this stipulated size format, what are the share quantities and spread? Hint: ask minus bid.
- Why can two screens show different best bids for a moment? Hint: data feeds.
Reflect on your own process
- Does your process note whether a quote you are studying is real-time or delayed, and where is that recorded?
- When you review a fill, how do you record the displayed size at the time against what actually filled?
- Which official source would you use to confirm a stock's round-lot size, and is it written in your checklist?