Market
Maker CFD brokers, also known as non Direct Market Access (DMA) CFD brokers, are the counter party against the trader's trade and
they profit when the trader takes a loss. When trading with a Market Maker, one common complaint is the frequent re-quotes especially during times of market volatility or fast moving instruments as the CFD broker needs time to adjust their books to allow for its internal hedging. Re-quotes are simply instances where the trader clicks on the "buy" or "sell" button but instead of a trade confirmation, receives a message that the price is not available at that level.
The Market Maker would then offer to trade at a different price. Upon receiving the trader's
trade, MM CFD brokers hedge their risk partially. It is
up to the discretion of the trading desk to decide on the hedging
strategy, which may be, for example, buying of options in the opposite direction of the trader's trade.
- often has a price discrepancy with the price on the exchange
- variable spreads and potential re-quotes
- generally does not allow traders to participate in opening and closing market auctions
- likely for MM CFD brokers to profit directly from the performance of a clients position
Market Makers are able to offer more trade-able instruments than DMA brokers as they are less dependent on the liquidity of the market. All they need to do is to increase the spread to reduce their risk. That is why Markers' spread is often the widest compared to the DMA brokers.
Generally, although the spread for a MM
CFD broker tends to be higher than a DMA broker, the brokerage fees are
lower. There is also no need to subscribe for level 2 market data
feeds.
