CFD trading: DMA or Market Maker?

CFD Trading

CFD brokers with DMA (direct market access) execution

CFD brokers that offer DMA execution are intermediaries that obtain their liquidity from banks. Trading orders are therefore directly replicated in the order book of the underlying product.

Advantages

- Full Transparency - Orders are directly placed in the underlying market and you can see your trades in the depth of the order book.

- No re-quotes - Sometimes orders are not accepted at the requested price and the broker offers another price that may be less favourable. This never happens with DMA CFDs because you can see the available liquidity on the order book.

- Pre-Market Auction - Since orders directly enter the underlying market, the DMA model also gives you the ability to participate in the bidding processes that occur when the market opens and closes, which provides you with new opportunities that you would normally not be able to access.

Disadvantages

- A highly limited range of products - DMA trading is only available for shares.

- Higher costs and fees due to the platform - DMA brokers use prices that come directly from the underlying exchanges, so you get better visibility and more complete data in real time... but this incurs a cost. The additional cost can be worth it if you have the skills to make good use of this information.

- Higher brokerage fees - As orders are directly covered in the underlying market, they incur market-based fees, which translate into higher brokerage fees.

 

CFD brokers with Market Maker execution

Market maker brokers offer a wide range of CFDs that cover all of the world's markets. They have the ability to set their own prices, but not with complete liberty. Prices always reflect (somewhat imperfectly) the prices of the underlying assets.

Advantages

- A worldwide range of options - Market Maker brokers provide you with broad access to the global market (currencies, commodities, shares, indices, ETFs, bonds). Think of it as a one-stop shop from a single trading platform.

- Easy to use - Simplicity is one of the main characteristics of Market Maker brokerage systems. You have access to an intuitive interface that lets you buy, sell and track your trades easily.

- Trading Tools - Market Maker brokers offer free charts that allow you to have an overview of all your trades and access software that will improve your trading strategies.

- Leverage - Leverage is a double-edged sword. It can help greatly improve profits, but it can also ruin you if you don't use it properly.

Disadvantages

- Trades are executed more slowly because they are not always sent directly to the markets, a Market Maker broker uses a dealing desk that decides whether it will become the counterparty, whether it will hedge the trades on the market or pair the orders with those of other clients. Market Makers manage their own hedging strategies (see the B Book article) based on their knowledge of their clients' experience.

- This type of broker does not offer as much transparency as a DMA broker, prices do not perfectly reflect those of the underlying markets.

- Re-quotes: If the ask price is no longer available, a CFD broker will offer another price which may be less appealing.

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Our selection of CFD Brokers