Traders' views - CFD trading

Day trading DMA CFDs

By Accendo Markets, 05 Apr 2012

With DMA CFDs, traders can get all the benefits of trading with conventional securities but with the added advantage of leverage gained by margin trading. So what is DMA and how do you trade this way?

When applied to contract for difference (CFD) trading, direct market access (DMA) describes a type of online trading that allows traders direct access to the underlying market, for example the share market. Instructions are sent straight to the exchange with no dealer intervention implying transparency.

Because a DMA provider allows direct access to markets by the trader, all trades are automatically hedged. This type of CFD dealing, often referred to as DMA CFDs, is becoming increasingly popular in Europe.

“ Direct market access allows CFD traders to place an order for a share wherever they want to, including within the spread”

Direct market access offers CFD traders all the benefits of trading with conventional securities but with the added advantage of leverage gained by margin trading. Without direct market access a trader is only allowed to buy a share at the set offer price but direct market access allows CFD traders to place an order for a share wherever they want to, including within the spread.

Therefore, DMA CFDs give the trader the ability to join the bid or offer queue, and participate in the true market depth of the underlying stock.

Direct market access providers can only offer a comparatively narrow range of products compared to normal CFD trading and therefore they sometimes find it difficult to compete with the wide range offered by market makers. However, brokers like Accendo Markets are not solely DMA providers and can offer a wide range of markets.

Traders wishing to trade forex, commodities or indices will need to make use of a market maker provider as direct market access trading is only suitable for stocks. DMA is ideally suited to high capital traders who wish to personally execute trades in the underlying market.

DMA CFD traders are price makers rather than takers

DMA CFD trading has the advantage of giving traders the opportunity to enter or exit trades at a better price giving them an advantage over traders using a market maker. When a DMA CFD trader inputs an order it is immediately reflected on the exchange and therefore affects the price of the share that the CFD is based on.

Thus, DMA CFD traders are said to be ‘price makers’ as they have the ability to directly influence the market.

For a nominal monthly fee, it is possible for CFD traders trading via direct market access to subscribe to exchange market data. Traders subscribing to exchange market data have access to real time quotes and statistics, allowing them to see how many buyers and sellers there are at each individual price level.

They will also have access to the order queues, enabling improved execution. If you want to take advantage of small price changes fast (for example day traders or scalpers making frequent deals) then trading CFDs using a direct market access model is an ideal trading tool.

 

To learn more about spread betting and contracts for difference (CFDs), you can click through to the BullBearings guide to financial spread betting here or our guide to CFDs here.

Click here to follow BullBearings on Facebook or here on Twitter.

Warning: Remember, particularly if you are new to trading in the stock market and in forex, that the prices of shares and other investments can fall fast and you may not get back the money you originally invested. The material here is for general information only and is not intended to be relied upon for individual investment decisions. Take independent advice before making such decisions. Also, the BullBearings free stock exchange simulation portfolios are a good way to practice trading techniques.

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