This is more of an advanced trading topic, but if you want to take your trading to the next level, it's an important tool to understand.
Level 2 provides users with depth of price information, including all the available prices that market makers and electronic communication networks (ECN) post.
Level 1 offers enough information to satisfy the needs of most investors, providing the inside or best bid and ask prices. However, active traders often prefer Level 2 because it displays the Supply & demand of the price levels beyond or outside of the bid. This gives the user a visual display of the price range and associated liquidity at each price level.
Price movement on Level 2 is not necessarily an actual reflection of the recorded trades; Level 2 is just a display of the available price and liquidity. This is an important distinction because high-frequency trading programs frequently adjust Level 2 bid and ask prices violently to shake the trees and panic onlookers despite the lack of actual executed trades. This practice is common in momentum stocks.
Watch this video to get a better understanding of how to read Level II data: