Which brokers provide the best liquidity for index trading?

A user has asked: Which brokers have the highest liquidity for index trading? Especially NAS100 and US30. Some have different symbols and names for the same index like USTech100 instead of NAS100. which means liquidity of NAS100 will different from USTech100.

Why do brokers call it the US30 instead of the Dow Jones Industrial Average (DJIA)

Answer. Firstly I’ll address the issue of why online trading platforms use different names for the indices they offer for CFD trading. Global stock market indices are owned by corporations and can only be used if licensed to do so by brokers.  For example, the FTSE 100 (UKX) belongs to FTSERussell which also owns indices covering real estate, fixed income and sustainable investments. If a broker wants to offer their clients the ability to trade the FTSE 100, they must pay a licence fee to do so. Depending on the size of the broker, this can be very expensive. Or in some cases, it may not be granted at all.

So for brokers it is cheaper and easier to create their own index based on roughly the same criteria.

In CFD trading and financial spread betting, brokers are not actually providing access to the underlying markets so when clients trade on the UK100 or US30, they are not placing orders in the market, rather they are placing bets or entering into “contracts for difference” based on a brokers OTC (over the counter) price. Brokers will generally quote prices around the underlying index, but there may not always be a direct correlation.

Which brokers provide the best liquidity for index trading?

With the exception of market markets that are required to create some minimum liquidity, there are no set rules for OTC brokers to provide liquidity. Liquidity is based on the underlying market as some brokers will need to hedge client index positions. If the underlying market has thin liquidity, so will your broker.

However, some brokers also limit liquidity based on position size or overall exposure. Retail trading accounts will get less OTC liquidity that professional trading accounts. Also, there will be position limits based on overall exposure. If a trading account only has one position it will be heavily exposed to that market, but if there is a diverse portfolio of positions, position limits will be higher as exposure is reduced.

To get the best liquidity for index trading you may be better of dealing through a direct market access broker that offers on-exchange futures and options execution. This way you can see the order book and get a live overview of liquidity in the market place.

However, futures are a professional trading product and only available to clients that have sufficient experience and funds. For traders that do not qualify for a professional trading account liquidity issues are basically moot as traders that do not qualify as professional should not really be trading in the volumes and size that would require additional margin.

A great book to get more information on this is Flash Crash, by Liam Vaughan, which tells the story of Navinder Sarao AKA the Hound of Hounslow, a futures trader on the e-mini S&P. It talks in-depth about how liquidity in the indices market works.

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