Learn about CFDs
- Getting Started
- Trading Stocks on Margin
- Basic CFD Trade Mechanisms
- A Closer Look at CFD Trade Orders
- The Mechanics of a Market Maker CFD Trade
- The Mechanics of an Exchange Routed Trade
The Mechanics of an Exchange Routed Trade
In this edition, we walk through the mechanics of a CFD Trade that is routed to the exchange order book.
As explained in a previous edition, the exact mechanics of making a CFD trade is dependent on the CFD provider and the trading platform, but we will take a walk through making a CFD trade using our CFD trading platform which is routed to the stock exchange.
Out of around 3,500 stocks available as CFDs from the 22 stock exchanges we support, we are currently the market maker for around 500 of the most popular. So if you are trading the major "blue-chip" companies, we are likely to be the market maker (up to a maximum amount of shares). The remaining around 2,000 stocks and trades in stocks above our maximum amount are routed directly through to the exchange. It is trading these stock CFDs that we will be discussing in this edition.
If you have our demo download, why not open it up and try this out yourself.
In Keytrade Pro, you trade CFDs through the CFD Trade Module. If you don't have this open, open it from the Trading > CFDs > CFD Trade menu.
Order Books
At the stock exchange, an order book is maintained for each stock which contains – amongst other things – the number of shares that can be bought (at the Ask price) and sold (at the Bid price) at different price levels.
The current market price that shares can be bought and sold is at the top of the order book and is known as the "Yellow Strip Price".
Volume Weighted Average Price
As the order book can move faster than the data can be processed and routed to you over the Internet, the price displayed in the trading platform is only indicative of the current market price from the order book. The price displayed also takes into account the number of shares you entered for the trade. So for example, if only 500 shares of the German company Altana are available at the current market price of 44.90 and you want to buy 1000, the remaining 500 shares will be filled at the next price level 44.91. This price is called the volume weighted average price.
The overall price displayed will then be ((500 * 44.900) + (500 * 44.910)) / 1,000 = 44.905 EUR/Share. The 0.04 EUR/Share difference you can see between the price displayed 44.945 and the calculated price 44.905 is the trading commission added to the trading spread.
