Available Types of CFD Brokers
Generally speaking, CFD brokers can be direct market access (DMA) type, or market maker (MM) type. DMA CFD brokers offer markets which work just like the real spot markets, and sometimes even better. With DMA CFD brokers, your trade is placed among a broad market, which liquid and good, but can still suffer from limited liquidity during volatile times.
MM CFD brokers offer very good liquidity too, and faster dealing times than DMA CFD brokers. The differences are very hard to spot, but they exist. All in all, for small size trading MM type will be better, whereas for larger trading size DMA type will be better. CFDs in general are becoming even more popular today, with the advent of cryptocurrencies, and more relevant than ever, because you can trade all kinds of markets in one account.
Fundamentally speaking, DMA CFD brokers are always okay with you winning big money, there are no conflicts of interests. MM CFD brokers are said to have conflicts of interests, but in reality you will never notice it, because all your trades are cleverly hedged, and they themselves at some point place excess trades on the DMA market. Moreover, trading does not work on an one on one basis, so if you buy a market it doesn’t mean that another single person has to sell to you, their software manages your trade, there and then, through the open market. So in reality even MM brokers are not really 100% market makers, but rather something of a hybrid between MM and DMA.
The CFD Edge
Regardless what type of CFD broker you choose to use, you will not really feel a difference, unless you trade at near the liquidity limit of those brokers, but even so whether MM or DMA is better, depends on how fast you trade and at what times. As long as your trading strategy is profitable, you will not notice a big difference from one broker to another. But there are other differences relating to trading platform, ease of use, automated trading tools such as contingent orders, and more, which can be unique to a broker. CFD traders are very wise traders, who end up becoming specialists in one or two markets.
You just have to look beyond the obvious, and look for brokers that best meet your trading needs. Today’s CFD industry is very competitive, and all established brokers have to be no less than very good. CFD regulation differs from one country to another, but CFD is the future. Countries that have banned CFD trading will get left behind, as this also bans the possibility to speculate on cryptocurrencies, and it even limits forex and commodity trading. Remember that CFDs were invented by bankers, in the early 1990s, as a way to enhance liquidity in the markets. It’s a natural step in financial evolution. Countries that prohibit free trading, free banking and investing, limit opportunities to their investors. Just think of how many people rely on stock investment portfolios for their retirement, and then compare such an investor in the United States, where CFDs are not yet available, with an investor in Europe or Asia where CFDs are available, and see the difference, and who will retire better. The Investor Greg website blog offers more information on various well rated CFD brokers.