Market Maker CFDs

Submitted by Jim Thesiger on 20 September, 2010 - 16:28

A trader can buy or sell CFDs directly from the provider if the CFD provider himself is playing the role of the Market Maker, they may or may not move forth and hedge such exposure in the underlying market.

In case of the market maker CFD model, the traders dealing with CFDs does not always get hedged in the underlying market but instead a synthetic market is developed which means an investor will be quoted a Bid and Ask along with the liquidity for trading.

Advantages of Market Maker CFDs

Wide Variety of Options

One of the key advantages of Market Maker CFDs is that they come with a wide variety of CFDs along with the capability to offer more liquidity in comparison to the underlying market. Say for example, because the market maker does not need to go hedging CFD trade into the exchange, offering CFDs on the energy sector or on Turkish or Swiss shares usually does not get that much expensive or cumbersome as it usually turns out to be in case of a DMA firm.

Better Access to the Market

Another advantage of getting involved with a market maker is that a market maker has the scope to comply with the demand of a client for a particular volume since market maker has the ability to provide the liquidity. Say for example, if a trader wishes to buy 2000 Rio Tinto shares with 1800 available in the market, a market maker may consider the demand and make sure that the client is getting filled at 2000 shares. However, it is to be mentioned that the market maker can turn down the demand as well depending on their analysis.

Lower Cost

In addition to this, the market makers usually do not have to repetitively pay brokerage to lodge share trade and pay exchange fees to the ASX, which makes the trading more cost effective. And at the end of the day this can be passed to the traders in the form of a reduced commission cost.

More Securities

Market Makers are also known for providing more securities to trade. As a matter of fact, some financial products like sector CFDs are offered only under the market maker model. The traders enjoy higher leverage on their trades and get the privilege of short-selling a greater range of stocks under this model as not all DMA firms will offer the capabilities of short-selling on all shares.

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