Why is the Data From My CFD Broker Different to My Normal End of Day Charts?

When people get started trading with their CFD broker, the first thing they notice is that the charts from their software is different to the charts on your software. This will be most noticeable for those that view charts of an end of day basis and used charting software like Metastock, Wealth-Lab, Ami Broker, Bourse or Phoenix AI.

Today will look at the main reasons for this:

• Market maker data versus normal data;
• Bid charts and ask charts typical of market makers;
• Market maker price discovery; and
• CFD charts and volume

Market maker data versus normal data

The first thing to take into account is the type of CFD broker you have. Market-makers don't necessarily reveal the actual price data from the stock exchange. The reason for this is day will attempt to to reflect be open, high, low and close of the CFD traders. Direct market access providers on the other hand will display the exact price as quoted from the respective stock exchange.

Bid charts and ask charts typical of market makers

When trading with a market maker it is important to realise their charting software will enable you to view a bid or an ask chart and this is where it can get a little tricky. You see if the chart you were trading had a high on the stock exchange of $10 it is possible for the market maker chart to show a high of say $10.03.

The reason for this is the market maker chart is a big chart and during the day it is possible for the bid price to go to $10.03 but not actually trade there. So what might have happened is the price traded up to $10 then someone put in a bid at $10.03 then removed that bid at the next price traded was at or below $10. This would have reflected a high of $10.03 on the market maker software but a high of $10 of the stock exchange data.

Market maker price discovery

This leads to what I call the market maker price discovery. That simply means there was a new price discovered of $10.03 despite the fact the market never, ever traded there. As you can appreciate it is very important to understand this before you do any back testing or charting using the market maker software.

The stocks that are most affected are those that are low in liquidity and have patchy volume. The high liquidity, top 200 stocks this usually is not a problem.

CFD charts and volume

The other main difference with the CFD charts is that volume is usually not shown. For many traders, volume is a critical component to confirming price direction and the conviction of the traders.

Essentially what all this means is you should not rely solely on the end of day data provided by your CFD broker but instead you should be using a professional end of day charting package with accurate, clean and adjusted data.

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