The Stock Exchanges of Deutsche Börse

It is well known that there is not only one stock exchange on the globe. There are numerous marketplaces worldwide where securities are traded, for example in the USA, Japan, China and Great Britain. In Germany, several regional stock exchanges have been founded over the centuries and still exist today. Frankfurt was already one of the most important financial centres in Germany and Europe in the Middle Ages. The trading centre on the Main has maintained this position to this day. Unlike in the past, investors on the Frankfurt Stock Exchange (FWB®) now have the opportunity to buy or sell their securities fully electronically on Xetra in addition to floor trading. But what is the difference between these two trading centres of the FWB and which of them is recommended for your individual securities investment? 

OTC trading: lack of transparency and little control

First of all: Trading in securities does not necessarily have to take place via a stock exchange. Shares, bonds, etc. can also be bought and sold outside the stock exchange. In such cases one speaks of off-exchange trading, also called OTC trading for short. OTC stands for Over the Counter. The direct fees for an order in over-the-counter trading are usually somewhat lower, but these places are also less transparent. Moreover, unlike a regulated exchange, they are much less controlled. 

Your advantages when trading on the stock exchange

In contrast to off-exchange trading, trading on the stock exchange is controlled by authorities such as the Federal Financial Supervisory Authority (BaFin) and monitored by the independent trading supervisory authority. Thanks to these institutions, stock exchange trading is precisely regulated. Possible infringements are checked and punished if necessary. As an investor, you benefit from this regulation from high transparency and monitoring criteria, fair pricing and protection against manipulation. 

With its two marketplaces, the Frankfurt Stock Exchange is the most important German trading centre for securities.

1.5 million securities of German and international providers are traded on the largest German stock exchange. The exchange provides its investors with two trading platforms: Xetra and Frankfurt floor trading. 

Xetra - the electronic trading platform

Xetra is the fully electronic trading platform of Deutsche Börse. 90 percent of stock trading in Germany is conducted on this marketplace. Here, supply and demand are automatically combined. A match automatically leads to a transaction. 

Xetra is thus the ideal trading place for securities that are traded very often, i.e. have high liquidity, such as the 30 shares in the DAX. On Xetra you benefit from high transparency, low trading costs, fast execution and fair prices, as supply and demand are enormously high. The system is so successful that it has become the global reference market for many German equities and the most important market for ETFs in Europe. 

Specialist trading - personal support on historical floors

For foreign, less strongly traded shares with a home market outside Germany, bonds and classical funds, the principle of full ketronic execution does not work. Such securities may lack the necessary liquidity if supply and demand are low. In the worst case, your order would remain in the order book or you would have to sell or buy at a bad price. 

In order to prevent this, Deutsche Börse offers specialist trading via the Frankfurt Stock Exchange. Here, too, trading today takes place via computers. The main difference to Xetra, however, is that additional specialists are involved in trading. Why? The specialists ensure that your order can also be executed in a non-liquid security at a fair market price. The method of price determination is clearly laid down in the rules and regulations of the exchange, and its execution is monitored. Specialists are obliged to keep the difference between purchase and sale prices, the trading margin, as small as possible, which reduces your costs. 

However, the most important service of the specialists is that they permanently provide offers to buy and sell with the quantities for which these prices apply. In this way they bridge situations in which there is no suitable order from another investor for your order in the market and your order would simply remain in the book. 

• Chapter 7: How the Stock prices are determined