Is stock exchange order book data useful for retail investors?

Order book can be useful. Order book data can reveal depth as well as pre-market information. Is this different from "Level 2" data? Yes: Level 2 usually covers Nasdaq-listed stocks only, only shows the best price for each investor, and does not show pre-auction data.

Using the Order Book to Gauge Depth

Order book data can reveal the depth of orders in the market: quantity available at prices farther from the best buy and offer prices. This can hint at the likelihood of getting a better price for an order.

For example, suppose I want to buy a stock and the inside bid is $25 for 100 shares. Maybe I hope to pay only $24.50, but I have no idea if that is a reasonable hope. Order book data might show that there are buy orders for 12000 shares at $24.98, 8000 shares at $24.95, and so on. If this stock only trades 20000 or 40000 shares on average in a day, an order at $24.50 is not likely to get filled unless prices drop due to information.

Pre-Market Information

Order book data can also reveal pre-market information: net order imbalances and information about likely prices and trades when the market opens.

Many exchanges are opened with an auction. Prior to the auction, I can look at the order book and see if my order is competitive and estimate where the market might open. (Some order books may not reveal this information, however I have used an order book for this in the past.)

If I look at the book and see many orders to buy a stock but few to sell, I might assume (perhaps falsely) that there are also more market orders to buy than sell. I might also see buy and sell orders which would trade against one another and determine the price which maximizes the amount which would trade. (That would then be the opening price.)

In both cases, I can price a sell order to be very likely to be filled. Furthermore, since all orders filled in the auction get the same price, I may be able to price my order lower and yet not suffer much (or at all) for my lower limit price.

TotalView gives you the net order imbalance for the opening auctions of Nasdaq-listed stocks, but not for NYSE- or AMEX-listed stocks. It may also let you see orders for all stocks which may execute once the market opens.

Market Closing Information?

What about using an order book to assess what will happen in the closing auction? TotalView displays indications of net order imbalances for the closing auction of Nasdaq-listed stocks. However, you do not get that information for NYSE- or AMEX-listed stocks.

Is the Order Book Worth Purchasing?

Now... despite these examples, is order book data worth purchasing? No... but maybe yes.

If you want to use the order book to get better prices on your orders, then no -- unless you trade often (say, 100 trades per month). Given that most investors already have the best bid and offer prices and sizes and bid-ask spreads are often only a few pennies wide, the order book data is unlikely to save you at least $15 per month.

If you want to use the order book to study the market, then it might be worth purchasing, even if just for a month. However, you would need to do more than just glance at the book. I would advise watching the order book around each market open and close and taking notes on what you observe. That might be worth far more than the $15.