The technical tools used in Japanese stock trading

Stock trading in Japan is a very different beast than in many other countries. The language barrier alone makes understanding the product and making trades to participate in the market difficult for foreigners.

Still, even more, complexities can be seen when comparing the Japanese system to its Western counterparts.

Lastly, there is no actual margin trading allowed as part of an individual’s trading accounts – only as a hedge within a financial institution – so to buy stock on margin, you’ll have to borrow from your broker.

Finally, short selling isn’t possible because such contracts aren’t allowed (you can bet against stocks through ETFs, though).

Although this article cannot cover all the subtle details of Japanese stock investing, we hope to give a general overview of the areas that are the most important to understand.

The technical tools used in Japanese stock trading

To fully participate in Japanese stock markets, one needs to know its market makers and how their operations work.

In Japan, there are two types of market making financial institutions that serve as intermediaries between buyers and sellers – “Total Quotation Company Providers” – shorthanded as “TQCPs” – which provide prices on stocks listed on the first part of the Tokyo Stock Exchange (TSE).

Also, independent securities firms – “Independent Securities Firms” or “ISFs”- provide those same prices for stocks listed on the second part of the TSE or other exchanges.

The Tokyo Stock Exchange (TSE) consists of Sections 1 and 2, each with its market makers. The first section is called “first-section securities”, while those on the second are referred to as “second-section securities”.

Each issuer has a designated market maker who creates buy and sell quotes for that particular stock, which are then reported through Japanese quotation systems to form what appears as continuous price charts.


The Tokyo Stock Exchange uses an electronic trading system known as FACETS, which NASDAQ designed in 1998 before being later adapted by the TSE.

It’s said that it handles more than70% of all trading volume in Japan.

FACETS uses a FIX-compliant API and TCP/IP connections to link securities firms and TSE data centres through routers and switches for order management, quote submission, and market data distribution.

All market data is stored on the “Toki” mainframe system and other TSE systems such as TradeWeb, FACETS ETF Trader, ECN Gateway, Securities Rotation Trading System (SROSS), etc.

In addition to this information, it manages the matching process by combining CrossFire, a program from Fidessa that supports ordered-based electronic trading using FIX API, with its custom “Matched Order Process” engine.

It receives requests from several trading platforms simultaneously – including facets, SROSS and the Stock Exchange Trading System (SETS) – and routes them to various destinations, including personal trading accounts and dealers.

However, you don’t necessarily have to use FACETS to trade stocks on the TSE because there are other ways of doing it, such as ECN gateways like CREST or directly with a securities firm that FIX-compliant APIs connect to.

The critical difference between these options is that both ECNs provide you access to information from financial institutions, while FACETS provides you access to all quotes submitted by market makers.

Additionally, for an active trader in Japan looking for extremely low latency, direct connectivity through FIX may be more desirable than using a quote feed like FACETS because it provides lower latency and more direct access to information.

Furthermore, ECNs like CREST also allow you to trade ETFs provided by the TSE.

For most investors looking to get into Japanese markets, the easiest way is to invest in ETFs that track entire indexes or specific market sectors, such as “Nikkei 225”.

This ETF tracks the performance of major Japanese companies found on the first section of the Tokyo Stock Exchange (TSE), which consists of large companies known as “N225” stocks.

Alternatively, one could invest directly in a company such as Toyota motor corporation, one of the most popular companies traded on the TSE.

Most ETFs can be bought and sold with relative ease using common trading platforms like TD Ameritrade or Saxo, but for those looking to trade shares of specific companies, your options are typically limited to ISFs who provide this service.

For more information, link to Saxo Bank.

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