CFD Trading and Direct Market Access (DMA)

The way we approach financial trading today is more direct and far more accessible than it has ever been before. Sophisticated online platforms offer us insights into multiple financial markets instantaneously that we could never have achieved even 20 years ago, and the growth in retail investing through online brokers, thanks to new innovative instruments like CFDs, has been staggering. Arguably one of the biggest innovations to come from the development of technology in trading is the widespread growth of DMA, allowing traders of all levels and sizes to make their own trading decisions on the markets first hand.

What Is Direct Market Access?

In most CFD trading scenarios, the trader takes a position against the broker, in a direct two party contract in isolation of the markets. While the value of the position depends on what happens in the underlying public market, the contract is made directly between the broker and the trader. In some instances, traders may prefer to deal in exchange-traded CFDs, and an increasing number of brokers are providing DMA functionality to allow traders a more straightforward route to the global exchanges.

DMA stands for ‘direct market access’, and is the functionality that allows traders to execute trades directly in the underlying markets. For CFD traders, these positions are executed directly in the relevant exchange-traded CFD market, with the broker merely the facilitator of the transaction. As technologies have improved and become more accessible and widely distributed throughout the retail investor market, the growth in DMA brokers and DMA service providers has been considerable, helping to bring a new generation of traders to a more direct trading process.

The Benefits of DMA and How to Use It with CFD Trading

DMA trading has many benefits for the experienced trader. Firstly, it can deliver greater price transparency than broker quoted CFDs, simply because the position is opened in the market directly. This means you are buying and selling CFDs are their optimum market prices, rather than accepting clipped prices from the broker. Alongside greater transparency is an ability to offer at more flexible prices. Depending on what the market wants to pay for your positions, you can sell for a more customised price through DMA trading than through broker traded CFDs.

Of course, this does have to be tempered with the issue of liquidity – unlike broker filled CFDs, DMA traded CFDs will require an active counterparty to be found, which can have liquidity problems and affect the final closing price, depending on the particular markets you are trading. That said, DMA can nevertheless give more control and flexibility to the trader, and can pave the way for alternative trading strategies to be deployed.

Direct market access allows traders to execute positions on global exchanges directly, and can provide a variety of benefits to CFD traders, depending on the markets they are looking to trade. Now a feature of an ever-increasing number of online brokers, the growth in DMA is a living testimony to the impact of advancing Internet technologies on the financial trading world.