Direct Market Access CFDs or DMA CFDs are one of the most transparent types of CFDs available. DMA CFDs have the advantage of allowing participation in the underlying market of the stock over which the CFD is quoted. DMA CFDs are relatively new and have only become popular in Australia over the last few years however, continue to become popular as traders realize the transparency offered by this type of CFD.
DMA CFDs have significant advantages over the more traditional over-the-counter (OTC) variety in that they allow the trader to participate in the opening and closing phases of the market. Being able to trade in these phases of the market offer significant advantages to traders as they are can receive the opening or closing price of the day. Traditional over-the-counter CFDs do not allow the trader to participate in these phases of the market thus preventing the trader from being able to receive some of the best prices of the trading day.
Despite the drawback of not being able to participate in the opening and closing phase of the market, over-the-counter CFDs do have the advantage of allowing the trader to buy or sell volumes that may not be available in the underlying market during normal trading hours.
DMA CFDs have become popular amongst day traders and scalpers. The main reason for their popularity is because DMA CFD providers allow CFD trades to flow onto the underlying market in the stock on which the CFD is based allowing active traders to take advantage of relatively small price movements. Using DMA CFDs also allows day traders to get set at the opening price at the start of the day and clear their positions during the closing price during the closing match phase.
One of the disadvantages of DMA CFDs is that generally DMA CFD providers do not offer guaranteed stop loss orders. Guaranteed stop loss orders have the benefit of allowing the trader to manage their downside risk. Slippage often occurs when using stop-loss orders, guaranteed stop-loss orders remove this risk altogether.
It is important to be aware that prior to opening a CFD account with you should be aware that when trading DMA CFDs you will required to deposit a higher initial margin amount than the over-the-counter (OTC) variety. In addition to higher margins many DMA CFD providers will not able to offer you CFDs over indices and foreign exchange contracts due to these contracts being over-the-counter in their very nature.
There are relatively few platforms available that offer DMA CFDs, one of the most common platforms in the Australian market is webIRESS. WebIRESS offers the speed and reliability day traders and scalpers need in addition to a variety of different order types such as trailing stop-loss orders. Another popular platform is ProDeal, ProDeal offers all of the advantages webIRESS offers with the additional benefit of being able to trade over-the-counter CFDs from the same platform allowing traders to trade CFDs on indices and forex from their DMA CFD account.
It is important that before making the commitment to start trading DMA CFDs that you understand the risks associated with the product. Like all leveraged products trading CFDs can offer substantial rewards however there are also risks involved that if not managed correctly can lead to losses greater than the trader’s initial deposit.
Before choosing a DMA CFD provider you should ensure to trial their demo platform and read their Product Disclosure Statement which outlines in detail the fees and charges, provides trading examples, and outlines the types of CFDs offered along with the risks and benefits of trading CFDs. You should ensure that the CFD provider you choose is able to offer you the platform and products that suit your trading strategy.
To discover more helpful information about CFDs you can download our free CFD Guide.
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