CFD Providers

Direct Market Access (DMA) or Market Maker

The first model introduced into Australia was a market maker model. A market maker CFD provider will receive an order from its client and then confirm the CFD trade with the trader. It then has a wide range of options open to them to hedge the underlying position. This includes offsetting orders against other traders, buying shares, buying options, warrants or futures to ensure that it remains in a market-neutral position. In the market maker model, pricing approximates the underlying market.

In the second model, DMA, the CFD provider receives an order from its client and then buys or sells the underlying share. Once the share is bought or sold, it confirms the CFD trade to the trader. Every position is protected by buying or selling the underlying instrument. In the DMA model, pricing is identical to that in the underlying market.

There is a huge debate in the CFD world over which model is ‘better’, but this competition is more from a marketing angle than a trading angle. There are some key differences between the way the two operate and a thorough understanding of these will help you to make an informed choice of which style you prefer.

One of the biggest differences is how orders are executed. The market maker model is based on an all or nothing basis, whereas DMA places the order into the market and part fills are possible.

CFD Providers