DMA CFDs – What Are The Benefits?

Posted on September 4, 2010
Filed Under CFD Investing | Leave a Comment

Direct Market Access CFDs or DMA CFDs are amongst one of the most transparent forms of CFDs available. DMA CFDs have the advantage of enabling participation in the underlying market of the stock over which the Contract for difference is based. DMA CFDs are rather new and have only become popular in Australia over the last couple of years however, they continue to become popular as traders realize the transparency offered by this type of CFD.

DMA CFDs have major advantages over the more traditional over-the-counter (OTC) kind in that they permit the trader to take part in the opening and closing phases of the market. Having the ability to buy and sell in these phases of the market offer important advantages to traders as they can obtain the opening or closing price of the day. Traditional over-the-counter CFDs don’t allow the trader to take part 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 disadvantage of not being able to participate in the opening and closing phase of the market, over-the-counter CFDs do have the benefit of allowing the trader to buy or sell volumes that may not be obtainable in the underlying market during standard trading hours.

DMA CFDs have become common amongst day traders and scalpers. The main reason for their attractiveness is because DMA CFD providers allow CFD trades to flow onto the underlying market in the equity on which the CFD is based enabling active traders to make the most of fairly small price changes. Using DMA CFDs also permits day traders to get set at the opening price at the beginning of the day and clear their positions during the closing price during the closing match phase.

One of the drawbacks of DMA CFDs is that by and large DMA CFD providers do not offer guaranteed stop loss orders. Guaranteed stop loss orders have the benefit of permitting the trader to control their downside risk. Slippage often takes place when using stop-loss orders, guaranteed stop-loss orders remove this risk altogether.

It’s essential to be conscious that prior to opening a CFD account you must remember that when trading DMA CFDs you will required to deposit a higher initial margin amount than the over-the-counter (OTC) type. As well as higher margins many DMA CFD companies will not be able to offer you CFDs over indices and forex contracts due to these contracts being over-the-counter in their very nature.

There are actually 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 range of different order types including trailing stop-loss orders. Another common platform is ProDeal, ProDeal offers all of the benefits webIRESS offers with the extra benefit of having the ability 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 imperative that before making the commitment to start trading DMA CFDs you understand the risks connected with the product. Like all leveraged products trading CFDs offers substantial rewards however there’s also risks involved that if not managed correctly can lead to losses greater than the investors initial deposit.

Before picking a DMA CFD provider you should make sure that you test their demonstration platform and read their Product Disclosure Statement which outlines in detail the fees and charges, provides trading examples, and outlines the kinds of CFDs offered along with the risks and benefits of buying and selling CFDs. You must make certain that the CFD provider you decide on can offer you the platform and products that suit your trading plan.

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