With Direct Market Access CFDs, the prices are set on the market on which the
model is based – for example, the ASX. You enter into the CFD as an investor at the underlying market price.
Direct market access is seen by many pundits as a fairer form of pricing, because the
prices are based on the real value of the underlying market. The DMA model means
that every CFD that’s ordered will actually pass through the ASX. So if you buy a CFD
for 500 shares in Company A, the CFD provider buys an equivalent number of shares
on the stock market. Your CFD trade will sit in the regular ASX cue with other traders.
The provider will usually hedge their own exposure as well. The DMA model also allows you to participate in pre-opening and pre-closing prices on the ASX.
Another benefit of the DMA model is transparency. With the market maker model there can be a spread included by the provider that is not taken into account with the commission. So, for example, if a provider is offering CFDs on Company A at $1.01 when they’re trading at $1.00 on the exchange, then you’re effectively paying an extra 1% commission.
Despite the benefits of the direct market access model, there is no clear winner in the DMA-MM debate – which model you choose really depends on what kind of trader you are and the features you require in your CFD trading.
Read about Market Maker (MM) CFDs.