What is XETRA? – Electronic Exchange

Xetra is the electronic trading place of the Frankfurt Stock Exchange. The Xetra exchange is based on a fully electronic trading system in which all buy and sell orders of the traders are compared.

Deutsche Börse introduced the electronic trading system in 1997, gradually replacing the floor trading of the Frankfurt Stock Exchange. Before Xetra, the integrated stock exchange trading and information system (IBIS) was used.

Xetra is an abbreviation and stands for exchange electronic trading.

Around 90 % of all stock trading on the stock exchanges in Germany is conducted via Xetra. This makes Deutsche Börse the largest of the seven stock exchanges in Germany.

How does Xetra trading work?

Orders are generally executed according to price/time priority. The priority for the execution of covert volume of the Volume Discovery Order is derived from the price/time priority of the visible limit of the Volume Discovery Order.

Trading is anonymous, i.e. market participants do not know which market participant has placed an order before it is executed.

The trading model is order-driven. Available order types are Market Order, Limit Order, Stop Order, Iceberg Order, Volume Discovery Orders, Trailing Stop Order and One-cancels-other Order. In addition, market participants can also enter quotes.

For exchange trading, the market model basically provides for the trading forms auction and continuous trading. Trading in the “Continuous trading in conjunction with auctions” model begins with an opening auction, can be interrupted by intra-day auctions and ends with a closing auction.

Trading begins with the pre-trading phase, followed by the trading phase and then the post-trading phase. The system is not available between post-trade and pre-trade.

What are the Xetra opening hours?

Trading is possible every trading day from 09:00 – 17:30 hrs.

Which instruments can be traded on Xetra?

German blue chips from DAX®, MDAX®, SDAX®, and TecDAX®, as well as securities from the European indices EURO STOXX 50® and STOXX® Europe 50, can be traded continuously on Xetra. Over 1,700 Exchange Traded Funds (ETF), Exchange Traded Commodities (ETC), and Exchange Traded Notes (ETN) can also be traded.

How is clearing done on Xetra?

The clearing is done via Eurex Clearing AG. As Eurex Clearing AG acts as the central counterparty (CCP), counterparty risk is minimized.

In addition to Eurex Clearing AG, trading participants can also select the European Central Counterparty as their preferred CCP for certain instruments.

XETRA clearing

How is a settlement on Xetra?

The transactions executed at the Xetra and Frankfurt Stock Exchange trading venues are settled via Clearstream Banking AG.

What trading models are available on Xetra?

Price determination on Xetra is based on clear and transparent rules.

For liquid shares, Xetra offers the trading model “Continuous trading with auctions”. Continuous trading ensures that buy and sell orders are executed immediately at the current market price. Every day, liquidity is additionally bundled here in three auctions (at the opening, around noon, and at the end of trading hours), thus determining the price level of a major stock exchange. Institutional investors in particular use the auction prices as a reference for the valuation of securities accounts and house inventories. This also includes investment banks and pension funds etc.

The opening auction initiates morning trading and is thus the start of trading. This bundles liquidity and determines the opening price. After the opening auction is completed, continuous trading starts. At midday, continuous trading is interrupted and the intra-day auction follows. Here the liquidity is bundled at midday. Continuous trading is then continued. At the end of trading, the third auction (closing auction) takes place, which once again bundles the liquidity at the end of the trading day. The closing price for the day is then determined here. As mentioned above, this price is often used as a basis for the valuation of securities accounts, etc.

What is the opening auction?

The opening auction is conducted before the start of continuous trading. It consists of the call and the price determination phase. Both the valid orders placed the day before and the orders placed on the current trading day participate in the auction. Iceberg orders and Volume Discovery orders are also taken into account.

The opening auction starts with the call phase. Here, participants can enter their orders and quotes, as well as change and delete existing orders and quotes. This is followed by the call phase. In this phase, the order book is partially closed. If there are executable orders, the indicative auction price is displayed. The indicative auction price is the price that would result from the auction if the price determination phase was completed at that time.

What is the IPO auction?

The IPO auction is comparable to a regular auction. The difference is that the order book is closed for the entire duration of the auction. Therefore, the price determination is limited to a price range determined by the cost leader and entered by the market control. Market participants are thus only informed about the price range, which is done via the Xetra Newsboard. Other information, such as auction volume, indicative auction price, etc. will not be disclosed during the IPO auction.

Which order forms are available on Xetra?

All integer order sizes can be traded on Xetra, i.e. the trading of fractions is not supported.

The two basic order types are Market and Limit Orders, but these are further specified by additional execution conditions, validity and trading restrictions.

There are Stop Market and Stop Limit orders, Trailing Stop orders, Once-cancels-other orders, Iceberg orders and Volume Discovery orders.

A one-cancels-other order is an order that combines a limit order and a stop market order. If the limit order is executed in full or the stop market order is triggered, the order not taken into account is deleted. In case of a partial execution of the limit order, the limit order remains with
the unexecuted volume in the Order Book and the volume of the Stop Market Order will be adjusted accordingly.

The Iceberg Order allows market participants to place large volume orders in the Order Book without disclosing the total volume of the order.

The Volume Discovery Order builds on the functionality of the Iceberg Order. It enables participants to make the hidden part of the Iceberg Order available for execution at the midpoint in parallel.

The following validity restrictions also apply:

  • Good for day (GFD)
  • Good till date (GTD)
  • Good till canceled (GTC)

What does Xetra offer?

Xetra offers the following advantages, among others:

  • Fair prices due to the high trading volume, which ensures that orders are executed at fair market prices
  • Low cost
  • A high speed and thus a fast execution due to the fully electronic consolidation of orders
  • A wide range of tradable securities. Almost all shares listed on the Frankfurt Stock Exchange can be traded on Xetra.
  • A large number of order supplements
  • What are the Xetra fees?

For a securities order on Xetra, Eurex Clearing, which provides these services for exchanges, charges 0.06 Euro per executed order. A value-based fee of 0.08 basis points, i.e. 0.0008 percent, is charged for this – but a maximum of 4 euros value-based fee.

What does FRA mean for shares?

FRA stands for Frankfurt and thus for the Frankfurt Stock Exchange.

What does post-trading mean?

Post-trade refers to the opening hours of Xetra trading. This closes at 5:30 pm so that the time after that is called post-trading.

However, in post-trading, one does not trade on the stock exchange, but off-exchange. This is also called “OTC” (Over the counter). However, you should note that the liquidity is lower and the prices can vary. This is because the pricing is done after-exchange by the respective market maker, who has some leeway due to the closed stock exchange, so that both the prices and the spread can be to the “disadvantage” of the private trader. In this case, it is definitely worthwhile to compare the respective market makers. Also the placing of market orders should be avoided.

What protection mechanisms does Xetra offer?

Xetra offers protective mechanisms to maintain price quality and improve price continuity.

These are volatility interruptions as well as extended volatility interruptions. These can occur both in auctions and in continuous trading.

A volatility interruption occurs when the potential next execution price deviates too much from previously determined reference prices. The volatility of interruption can be triggered in two ways. There are two price corridors, which are determined individually for each security. These define the maximum percentage or absolute deviation from the reference price for the respective security.

If the potential price lies outside the price corridor, a volatility interruption occurs. As a result, trading is interrupted by an additional auction price determination in accordance with the most-execution principle.

In addition to the volatility interruption, there are other protective mechanisms.

Market orders are executed at the reference price (last traded price) if only market orders executable in the order book are opposed to each other. If there are unexecuted market orders in the order book during continuous trading and they are executed against incoming limit orders, the price is determined based on the reference price (last traded price). If multiple prices are possible during an auction price determination, the price closest to the reference price (last traded price) can be determined.

What are the admission requirements for trading on Xetra?

In order to participate in trading, banks, financial services institutions, and financial companies require admission to the Frankfurt Stock Exchange (FWB®). The legal basis for participation in the FWB Rules and Regulations.

In order to be admitted to trading on the Frankfurt Stock Exchange as traders, they must be considered reliable and have the necessary professional qualifications.

Proof of reliability is provided by the following points:

1. Application for admission as an exchange trader at the FWB

2. The following documents, in particular, shall be attached to the application as proof of reliability:

a) Complete curriculum vitae, which must contain all first names, maiden name, date and place of birth and nationality

b) Declaration of personal reliability according to § 2 Admission Rules for Exchange Traders at the FWB

3. The following documents must be attached to the application as proof of professional qualifications (technical knowledge and practical experience):

The professional knowledge is proven by passing the trader examination. The examination is carried out by means of a multiple choice test at the Frankfurt Stock Exchange.

Practical experience can be proven either by proof of successful participation in a functional system training course or by proof of participation in trading on an exchange or multilateral trading system over a period of at least six months within the last two years prior to the application.

Is there also a website of XETRA?

Yes, there is a website: www.xetra.com

The website provides information about Xetra in general. There is also information about the Xetra Newsboard, where the latest news about Xetra trading is published. Be it suspension of trading, resumption of trading, etc.

In addition, there is the “Newsroom” tab, which explicitly displays all current information on Xetra trading.

Furthermore, you can register as a trading participant or sign up for the trader examination via the website.

Conclusion on the XETRA electronic exchange:

Xetra is a fully electronic trading system introduced by Deutsche Börse.

With this trading system, the German stock exchange has significantly accelerated and improved stock exchange trading.

It is not without reason that around 90% of all stock trading on the stock exchanges in Germany takes place via Xetra.

The trading models, as well as the protective mechanisms, are also perfectly regulated.

Xetra thus offers many advantages not only to institutional but also to private investors, so that trading via Xetra can be carried out fairly and transparently. Especially during Xetra trading hours, investors should preferably trade via Xetra or at least orientate themselves towards the prices on Xetra.

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