Broker comdirect: Offer of trading during holiday via OTC

Today i received an offer from my online broker, comdirect.

Their special promotion was that now clients can also trade during certain holidays using the live trading function. This is basically OTC trading with another financial institution. Often that done is with institutes such as Commerzbank, Lang&Schwarz or Tradegate.

Now im not saying that this function is bad, on the contrary it can be extremely useful and I used it time and again.

However I advise to caution in certain situations:

                -Trading in the after-hours, when normal exchanges are closed.

                -Even more so for those “holiday specials”

                -Illiquid securities

One can observe a rising bid-ask spread as soon as regular stock exchanges close, especially when there is only one institution offering an OTC exchange.

Usually I favor OTC when the stocks are primarily traded on foreign exchanges (outside of Germany) but still highly liquid.

Let’s look at Vivendi SA for example:

LiveTrading                     Geld      Brief      Datum                    Zeit   Gestellte Kurse

LT Commerzbank            12,669   12,726   11.05.12               22:01     3.395

LT Tradegate                   12,705   12,754   11.05.12               21:59     153

LT Lang & Schw..           12,569   12,685   13.05.12               19:03     27

Börse                     Aktuell     Datum                  Zeit       Tages.-Vol.     Anzahl Kurse

Xetra                      12,72     11.05.12               17:13     193.239,27          25

Frankfurt                 12,75     11.05.12               18:24     212.268,49          16

Stuttgart                  12,66     11.05.12               19:58     78.011,95            8

NYSE Euronext      12,78     11.05.12               17:36     --                         10.901

So as we can see, on LT Commerzbank in total 3.395 quotes were offered, which is quite a lot when compared to the home exchange Euronext with 10.901 prices and even more so when compared with the generally most active German exchange XETRA with only 25.

So when trading this stock on XETRA one would probably get a unfavorable quote, while with OTC I get a decent priced quote with less transaction costs (no foreign exchange, less cost than a traditional German exchange).

All in all a good and handy feature, however don’t forget to check quotes and spreads with OTC trading as well.