The level 3 merchants are merchants specialized to provide the best equipment to settlers, and more interesting are the level 4 merchants who provide ultra-high-quality armor which can only be acquired by crafting the special armor recipe. They also provide armor-related junk, which makes them valuable, and they can be bought by settlers, even if they are not nearby.
The level 3 merchants appear randomly. If they offer their services, they will appear as a flickering light which appears in the settlement, unlike the level 1 and 2 merchants who appear in settlements from the start. There is no point in creating a shop in settlements that do not have level 3 merchants, except for the Northport Trading Co.
The level 2 merchants are much more interesting. In the quest Kessler's Quest , they appear at the northern port, and the level 2 merchants are also assigned to the settlement there. In order to access them, you need to complete the task Kessler's Quest: Merchant Store Assignment , which can be done by completing the second quest of the same name.
The level 3 merchants have the unique ability to offer merchants that are not directly reachable using the Radioactive Mannequin. Therefore, even if a store is level 3, you can't access it through the Radioactive Mannequin.
The level 1 traders appear to be generic traders who can be found in any settlement. They will sell junk and low-quality armor but can also provide extra tools, which is crucial for level 3 shops.
In order to unlock level 3 traders, you must build a workshop. This basically means that you already have the required skills for the workshop. If you've already built it, you can use your own Radioactive Mannequin (also part of the workshop) to buy unique armor at a higher price. Alternatively, you can skip this step and wait for settlers to manufacture the armor at a higher level.
If you are looking for a place where you can sell weapons and high-end mods, The Alamo Cash & Carry in the Mojave is a great place to go. You can sell items to them at a higher rate than other merchants. Also, the place is quite big and has many crafting stations. The place also has a good rate of military supplies, especially medical supplies. You can find a lot of good weapons here. 827ec27edc