Choosing the right stock exchange: Which stock exchange should private investors trade on?

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• Germany is home to five large trading floors

• Electronic trading systems save costs

• OTC trading enables the purchase of Swiss shares

Since the old business adage “The profit lies in the purchase” also applies to the stock exchange, choosing the right trading venue for private investors is the first important step towards successful stock exchange business. Because there are some differences between the international, regional and electronic stock exchanges or trading systems that you should know as a successful investor.

The role and history of the stock exchange

In our modern financial system, the stock market performs two very important jobs that are very crucial to the functioning of the economy. On the one hand, the stock exchange acts as a primary market and offers companies the opportunity to collect fresh capital from investors with the help of new issues in order to implement new plans and projects. On the other hand, it serves as a secondary market that enables investors to buy or sell individual securities during the respective trading hours.

As an institutional trading venue, the stock exchange can look back on a very long history. The world’s first stock exchange was founded in 1409 in Bruges, today’s capital of West Flanders. Around 130 years later, the first official stock exchanges in Germany were opened in Augsburg and Nuremberg. These early trading places made it possible for merchants to carry out their goods and financial transactions in an uncomplicated manner.

Stock exchanges in Germany

In the heyday of the stock exchanges, there were a total of 27 different trading venues in Germany alone. Today, however, there are only five stock exchanges in the traditional sense in Germany, i.e. so-called floor stock exchanges or regional stock exchanges. These traditional stock exchanges include the Berlin Stock Exchange, the Frankfurt Stock Exchange, the Munich Stock Exchange, the Stuttgart Stock Exchange and the Boersen AG, which includes the regional stock exchanges of Hamburg-Hanover and Düsseldorf.

Frankfurt Stock Exchange

The Frankfurt Stock Exchange is by far the best-known trading place for shares in Germany. It was founded in 1585 and is now listed as Deutsche Börse AG itself as a stock corporation. Trading on the Frankfurt Stock Exchange takes the form of a continuous auction. This market model enables buy and sell orders to be processed quickly and liquidity to be pooled. For each security there is a trader who provides a permanent bid and ask price. However, investors who trade on the Frankfurt Stock Exchange still have to pay a transaction and trading fee in addition to their order fees.

Stuttgart Stock Exchange

After the Frankfurt Stock Exchange, the Stuttgart Stock Exchange is the second-largest trading floor in Germany. It was founded in 1861 and is now owned by the Baden-Württembergische Wertpapierbörse GmbH as a public-law institution with partial legal capacity. In contrast to the stock exchange in Frankfurt, the Stuttgart-based company relies on a hybrid market model that combines professional traders and electronic trading. In this way, partial executions can be prevented and the market can be supplied with sufficient liquidity at the same time. Investors who are active on the Stuttgart Stock Exchange must pay an additional transaction fee in addition to their order fees.

In addition to classic floor trading, the Stuttgart Stock Exchange is also home to the Euwax trading segment. Euwax is one of Europe’s largest platforms for trading in securitized derivatives such as reverse convertibles or leverage certificates.

Munich Stock Exchange

With a so-called specialist model, the market model of the Munich stock exchange differs again from the models from Frankfurt and Stuttgart. With the help of a consistent comparison with the worldwide reference markets, this model should always lead to fair execution. The Munich-based stock exchange was founded in 1830 and, as an institution under public law, belongs to the Bavarian Stock Exchange. Investors who trade via the Munich Stock Exchange have to pay a transaction fee and a brokerage fee in addition to their order fees.

Stock exchange Berlin, Hamburg-Hanover & Düsseldorf

The Berlin Stock Exchange, which owns the Berlin Stock Exchange eV, was founded in 1685. The trading model of the exchange runs via an order book, which is linked to the electronic trading system Xontro is connected.

The Hamburg-Hannover Stock Exchange also relies on a hybrid trading model, which works via discount broker trading and an order book. The stock exchange, which was founded in 1558, belongs, like the Düsseldorf stock exchange, to the stock exchange AG. Like the trading venue in Hamburg, the Düsseldorf Stock Exchange relies on a hybrid trading model. In contrast to floor trading in Hamburg, however, the Düsseldorf Stock Exchange was only founded in 1853. In addition to the normal order fees, investors also have to pay a transaction fee and a brokerage fee for all three stock exchanges.

electronic trading systems

In contrast to classic floor trading, an electronic trading system is an automated trading model that brings buyers and sellers together by itself. This means that there is no longer any need for communication between the individual dealers.

The electronic trading system “exchange electronic trading” or Xetra for short, launched by the Frankfurt Stock Exchange in 1997, is now one of the leading “computer exchanges” in all of Europe. But even with Xetra, investors have to pay an additional transaction fee in addition to their order fee.

Inexpensive alternatives for private investors

While the large floor trading places, as well as Xetra, demand additional fees from their traders, the electronic trading systems Tradegate Exchange from Berlin, gettex from Munich and Quotrix from Düsseldorf offer private investors in particular the option of trading securities without additional fees.

Furthermore, these three electronic exchanges offer their customers trading hours from 08:00 to 22:00, thus guaranteeing a high execution quality.

OTC trading

Investors who want to buy or sell securities do not necessarily have to do so via an official stock exchange, but can also visit a so-called market maker. Over-the-counter market makers are usually large institutions that act as counterparties in a stock transaction. Trading between market participants who do not arrange to meet on a stock exchange is also referred to as direct trading or OTC trading “over the counter”.

In addition to the advantage of long trading hours and low or no additional costs, off-exchange trading offers private investors the opportunity to trade such securities without any problems despite the trading ban on shares from Switzerland . The Lang & Schwarz Group from Düsseldorf, which was founded in 1996, offers one of the largest over-the-counter platforms.

A matter of taste

Which trading place is the best in Germany cannot be answered objectively. However, investors who want to save any additional transaction costs should switch to the electronic trading systems Tradegate or Quotrix, since there are no fees and the relatively high trading volume ensures a very low bid-ask spread. Otherwise, it can be worthwhile for investors if they switch to over-the-counter trading venues right now to trade popular shares from Switzerland.

On my own account

By the way: If you want to invest in stocks, please also take a look at finanzen.net zero. In this depot you can trade shares and all other securities without order fees. Please have a look there, it’s worth it!

Pierre Bonnet / finanzen.net

Image sources: Julian Mezger for Finanz Verlag