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Tuesday 23

October, 201810:56 AM


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Market Maker CFDs

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What does it mean?

When your CFD provider is the Market Maker, you buy and sell CFDs directly from your provider; they may or may not go forth and hedge this exposure in the underlying market. .


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TheBull says...

With the market maker CFD model, CFD trades aren’t always hedged in the underlying market. What happens instead is a synthetic market is created. This means that you will be quoted a Bid and Ask (the difference between the two quotes being the spread), and the liquidity for you to trade. 

The standout benefit of Market Maker CFDs are the wide selection of CFDs available under this model, as well as the ability to offer greater liquidity than the underlying market. For example, since a market maker doesn’t have to hedge the CFD trade into the exchange, offering CFDs on Turkish or Swiss shares, energy sector or crude oil CFDs isn’t as cumbersome, messy and expensive as it would be for a DMA firm. As well, should a trader want to buy 2,500 BHP shares and there are only 2,300 on offer in the market, a market maker can fill the client at 2,500 shares. Since they provide the liquidity, they decide whether or not to meet a client demand for a particular volume. And since market makers don’t have to repeatedly pay brokerage to lodge share trade, and pay exchange fees to the ASX, these cost savings can be passed onto the trader in the form of lower commission costs.

Market makers typically offer more securities to trade – in fact, some financial products such as sector CFDs are only offered on the market maker model. They also allow higher leverage on trades, and will enable you to short-sell a greater range of shares, since some DMA firms don’t offer short-selling capabilities on all shares.

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