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Swiss DOTS: What You Need to Know About Market Makers

Numerous issuers offer structured products on Swissquote’s trading platform, and are responsible for pricing their products. Find out how they work.

Market makers are participants in the financial markets who are continuously available to other market participants as a counterparty, enabling them to implement their buying or selling decisions at a market-driven price. In the case of structured products, the market maker and the issuer are the same person. This means that the market maker not only provides the product (role of the issuer) but also sets the pricing for external buyers: investors. Investors who use a market maker are hence dealing with a known counterparty.

Although the market maker generally bases their pricing on the performance of the relevant underlying product, in this case investors should check the market maker’s issuer risk before making their investment decisions.

Numerous issuers offer structured products on Swissquote’s trading platform, and are responsible for pricing their products. The issuer’s offer usually applies for the entire day.

The market maker prices the spread (the difference between the bid and ask price) depending on the trading hours of the underlying asset concerned.

A distinction is made between pre-market trading, which occurs between 08:00 and 09:00 CET; official trading hours, which take place between 09:00 and 17:30 CET; and after-hours trading, which generally lasts from 17:30 to 22:00 CET.

In the case of currencies or underlying assets such as gold or stock index futures that are updated around the clock, each issuer’s spreads generally fall within a comparable range for the entire day. But, as we know, there are exceptions to every rule.

Issuer spreads widen when the underlying asset is subject to strong price fluctuations.

They can even be suspended entirely by the issuer in extreme cases or before particularly significant information is announced. Once an offer sells out, the market maker only provides selling prices (ask prices). In addition, the market maker may only provide ask prices if the underlying asset comes perilously close to its stop loss limit in the event of a knock-out warrant, for example.

In the case of securities listed in Switzerland, the off-exchange (OTC) and on-exchange spreads are generally very similar during the day. During official trading hours, the spreads offered by issuers on Swissquote is based on the price of the underlying product on relevant European stock exchanges. If an investor wishes to buy a structured product from a market maker outside of regular trading hours, they must enter the relevant issuer on Swissquote trading platform, provided that the issuer also offers their products for trading off-exchange. The issuer then provides the investor with a price for the product concerned that is valid for a limited time.

The market maker usually operates differently in the case of foreign securities. Generally speaking, they usually offer significantly narrower spreads during on-exchange trading in a particular country than in off-exchange trading. It is important to note here that spreads in foreign stock markets such as USA, Canada, Japan, Australia and other countries are generally wider until the respective stock exchanges open. It is therefore advisable for investors to only trade in such securities during the ordinary trading hours of these foreign stock exchanges.

It is advisable to seek further clarification before choosing a market maker, as there could very well be significant price differences between the same underlying assets. These kinds of cross-checks can be carried out quickly and efficiently on the Swissquote platform, as shown by the following example of continuous knock-out-call warrants on the SMI with a strike greater than or equal to 11,000 points.

Swissquote Trading Platform

One valuable tool for market maker comparisons is the PMMI tables published monthly on www.payoff.ch by Avaloq, a subsidiary of the Japanese group NEC.

The Swiss DOTS platform offers you access to a wide selection of leverage products with various underlying products, such as international and Swiss equities, currency pairs, indexes or even precious metals.

At the same time you can benefit from particularly long trading times — from 8:00 to 22:00 — and various order options.

Swiss DOTS products can be traded at a flat rate from just CHF 9.- .

Go to Swiss DOTS products

DISCLAIMER

The content of this article (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice.

Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.

Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of the video content.

The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.

Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Bank Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC).

Products and services of Swissquote are only intended for those permitted to receive them under local law.

All investments carry a degree of risk.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74–89 % of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high risk tolerance. Make sure you understand each Digital Asset before you trade.

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Stefano Gianti

Stefano Gianti

Education Manager at Swissquote, Member of SIAT_Italia (the Italian Society of Technical Analysts) and IFTA (International Federation of Technical Analysts).