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Why CFD Equity Quotes Differ from Exchange Trade Data

Article Quant Q&A · Author: V.Medvedev
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Summary

The discussion explains why historical equity data from a CFD provider may show bid and ask quotes rather than records of trades in the underlying shares. A CFD is a derivative whose provider makes a market around the underlying security; its displayed prices can track the share while differing from exchange prices and reported highs, lows, opens, and closes.

It also points to two sources of discrepancy. CFD providers may hedge client positions in different ways, and their quoted market may draw on only a primary listing or a limited set of venues. Separately, US consolidated trade reporting follows eligibility rules, so the last-sale price may not reflect every transaction even when some trades contribute to reported volume. The answer advises checking where a dataset’s prices come from and which trades it includes. It offers general explanation rather than a provider-specific audit of the data or a guarantee about execution quality.

Key ideas

  • CFD quotes represent a provider’s derivative market and are not necessarily records of trades in the underlying shares.
  • A CFD’s bid and ask can track the underlying security without matching its exact traded prices or candle values.
  • Providers can use different methods to hedge customer exposure, affecting how their markets relate to underlying trading.
  • A CFD quote may rely on a limited set of underlying venues.
  • US consolidated reporting applies rules that determine which trades update the last-sale price.

Tags

EquitiesMarket microstructureExecutionUS markets
Full text
# Why does historical equity ticks from Dukascopy.com not contain trade ticks?


# Why does historical equity ticks from Dukascopy.com not contain trade ticks?












I've found that ticks for equities (for example for companies from US market like Amazon or Apple) someone could name as "best bid/ask offer" (or Level 1 type of tick data) and them clearly not contain "trade bid/ask" ticks. You can see that bid always not equals ask so it is not a "trade bid/ask" ticks.

I've compared candlesticks for 5-mins frame from yahoo-finance and from Dukascopy.com and receive different open/close/high/low values for these candles (obvious result as Dukascopy.com data includes I guess "best bid/ask offer").

There is some warning at the bottom of the site "Dukascopy Bank's CFD quotes shall not be considered as precise price information obtained directly from the exchange and/or the trademark owner of the hedging instrument." Is it connected somehow to CFD product?

## Answer by Richard at NorgateData (score 3)

https://quant.stackexchange.com/a/59823

Understanding exactly where the price data comes and which trades are incorporated into the data is important.

A CFD is a derivative instrument. The market maker of the insturment (in this case, Dukascopy) maintains this derivative market by offering a bid/ask spread against the underlying instrument. Certain CFD providers will transparently place your order into the underlying market, but others will use other techniques to hedge their position. Others will even just take the opposite position to you, if you are not a regular winning trader. Beware of requotes when a market moves against your desired trade. Expect slippage (or even the inability to trade) in fast moving markets.

Since a specific broker's CFD trades are nowhere near as plentiful as the underlying market, it is typical to see a CFD charting showing the bid/ask pricing. Such charts will be highly correlated to the underlying market of course, but the exact price minima/maxima will not be identical.

Another factor involved is that the default style for trade reporting on the US is via the "consolidated tape". This has specific rules, developed by the Consolidated Tape Association, on which trades are incorporated into the tape (e.g. large block trades are not eligible to update the last sale price, but are included in the daily volume). The CFD might only be basing their market making from the primary listing of the security or, perhaps, a handful of exchanges.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.