Why market depth has just taken on fresh significance for MT5 ‘brokers’

By Andrew Wood, Business Development Manager – Institutional at CMC Markets for Australia and New Zealand, who will be looking forward to meeting the senior leaders of the global multi-asset electronic trading industry on Thursday evening this week at the FinanceFeeds Sydney Cup FX Industry Networking Event, which will take place at The Establishment, 252 George Street, Sydney, NSW.

There’s broad awareness of the fact that a quoted spread is only as good as the market depth that sits behind it, but that certainly hasn’t stopped the campaign we’ve seen in the foreign exchange and CFD market for many years, focusing largely on a quest to deliver the tightest possible pricing.

It might make for an attractive marketing headline, but in many cases it also leads to disappointment when it comes to the trading experience, with bigger ticket orders in less liquid instruments being returned with requotes or simply going unfilled.

A key part of the challenge here is that although classic exchange settled products such as physical equities will always come bundled with depth of market data, there has never been a comparable data stream coming from those offering over-the-counter (OTC) products.

You could always have that conversation with the individual broker by phone – although that was always going to be lacking as these prices are moving all the time – but it’s clear that the market itself is now demanding change.

MetaTrader is at last seeing increased demand for its MT5 platform so whilst this offering may have been on the table for a while, it does seem as if the new system is now close to finding popular acceptance, and part of this could well be a consequence of its ability to either directly display or otherwise synthesise a market depth indication.

Ultimately this improves transparency and the client trading experience, so with institutional markets now focusing so much on the global code of conduct, it can be little surprise that investors want to see similar values themselves.

Perfect timing then for one of the latest developments at CMC Markets. We launched market depth information against CFD products on our Next Generation trading platform and have now uniquely incorporated that into our API for those simply looking to tap into the liquidity feed.

With the burgeoning popularity of the MT5 platform amongst brokers based in the Asia Pacific region, it would seem as if more CFD providers will be offering this functionality in due course – although for now anyway, CMC Markets is the only liquidity provider offering this functionality.

So it’s not only a case of the availability of market depth information giving CMC’s own clients a better trading experience, but it also means that those signed up to brokers using MT5, trading on-exchange products and who in turn are taking liquidity from CMC, will also now have an extra layer of transparency on hand.

For those OTC instruments listed on MT5, the depth of market measure has to work differently by proactively allowing resting stop and limit orders to be placed. This enables users to take full advantage of price movements, rather than just seeing orders rejected in full, owing to insufficient market depth.

From this starting point it would perhaps be of little surprise if further demand for transparency from end users not only results in many more CFD providers offering up this liquidity metric in their own APIs, but also leads to more clarity generally being provided when trading off-exchange, too.

For many years there have been calls to move foreign currency trading to a centrally cleared exchange model and whilst that may be no closer, better visibility of the market would surely be welcomed by clients looking for their next trading edge.