CFD types explained

There are a few different type of CFDs and it pays to know the fundamental differences before choosing the one that’s right for you. Two of the biggest CFD models are Direct Market Access and Market Maker.

Direct Market Access Direct Market Access (DMA) CFDs provide the prices and liquidity present within the underlying exchange (e.g. the ASX). DMA CFD orders are passed directly through to the physical market with no dealer or market maker intervention, resulting in real time execution and true market prices. This provides complete order transparency, allowing clients to see their orders processed in the underlying market.

Market Maker A Market Maker (MM) CFD provider is just that, a Market Maker. They create their own market and prices which are based on the actual exchange. There are some noteworthy advantages of trading MM CFDs. They can provide quotes on stocks that may otherwise be illiquid or potentially compensate for a lack of market depth at a particular price. They also have the ability to allow the trader to gain exposure to a wide range of exotic markets, indices and currencies plus the added protection of guaranteed stop losses. Furthermore because of the fierce competition present in the CFD market nowadays Market Makers also provide very low brokerage costs.

DMA vs MM
Direct Market Access Market Maker
Structure Physical link to actual stock exchange Mirrored price to stock exchange
Pricetaker/maker Price maker, means that your trades are influencing the security price (your order are contributing to bid-ask price) Price taker, means that your trade do not contribute to bid-ask price
Liquidity Market liquidity Can provide a higher degree of liquidity
Cost Brokerage and financing cost Brokerage, financing cost and potentially additional spread on bid-ask price

 

ASX CFD The third type is ASX Listed CFD. It offers added protection because only CFDs listed, traded and cleared on ASX are used, providing a fully regulated and transparent market. This third type of CFD has been created in response to the extra risk of the counterparty investing your money with CFD providers.

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