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CFDs are complex instruments. 70% of retail client accounts lose money when trading CFDs, with this investment provider. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. CFDs are complex instruments. 70% of retail client accounts lose money when trading CFDs, with this investment provider. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.
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What is an exchange?
An exchange is an open, organised marketplace for commodities, stocks, securities, derivatives and other financial instruments. The terms exchange and market are often used interchangeably, as they both describe an environment in which listed products can be traded.
A key function of an exchange is to provide fair, efficient and orderly trading opportunities by centralising the buying and selling of a particular type of asset. Instead of dealing directly with exchanges, most traders will use a broker.
Examples of exchanges
Exchanges are located in most countries around the world. They can be a physical location, where traders meet to conduct business, or an electronic platform.
Physical
Traditionally, an exchange was a physical location used for trading securities, which operated via an open outcry or a dual auction system. While less common, there are some exchanges that still offer pit trading – including the New York Stock Exchange (NYSE) and the Chicago Board Options Exchange (CBOE).
Electronic
In line with the rapid digital transformation of today’s economy, the definition of an exchange has significantly evolved too. As traditional exchanges began to handle an increasing amount of trading flow, most trades started to be placed electronically, off the trading floor. Some examples of purely digital exchanges are the NASDAQ stock exchange and bitcoin exchanges.
Pros and cons of exchanges
Pros of exchanges
Exchanges are regulated bodies which means transparency of both pricing and transactions. According to these regulations, every trade on an exchange is guaranteed and settled, usually through a clearing house. Exchanges also have a responsibility to ensure best execution – which means that all participants get equal treatment and all trades are executed at the best available market price.
Cons of exchanges
As transactions are often spread across multiple exchanges, there has been an increase in algorithmic trading and high frequency trading (HFT) models. There has been speculation that these models can provide false liquidity and front-running – which is the practice of illegally executing a personal order ahead of a sizeable client order. In instances when the algorithms trade outside of their expected patterns, these models have also been linked with market crashes.
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^IG International Limited is part of the IG Group and its ultimate parent company is IG Group Holdings Plc. IG Group established in London in 1974, and is a constituent of the FTSE 250 index.
The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate. 70% of retail client accounts lose money when trading CFDs, with this investment provider. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how this product works, and whether you can afford to take the high risk of losing your money.
CFD Accounts provided by IG International Limited. IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority.
IG provides an execution-only service. The information in this site does not contain (and should not be construed as containing) investment advice or an investment recommendation, or an offer of or solicitation for transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result.
The information on this site is not directed at residents of the United States and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
IG International Limited is part of the IG Group and its ultimate parent company is IG Group Holdings Plc. IG International Limited receives services from other members of the IG Group including IG Markets Limited.
