DMA CFDs – What Are The Benefits?

by forexrobot on August 1, 2010

Direct Market Access CFDs or DMA CFDs are considered one of the most transparent types of CFDs available. DMA CFDs have the advantage of allowing participation in the underlying market of the share over which the Contract for difference is based. DMA CFDs are somewhat new and have only become common in Australia over the last few years however, they continue to become prevalent as traders understand the transparency obtainable by this variety of Contract for difference.

DMA CFDs have significant advantages over the more established 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 operate in these phases of the market offer major advantages to traders as they can receive the opening or closing price of the day. Traditional over-the-counter CFDs don’t permit the trader to take part in these phases of the market thus preventing the trader from having the ability to receive some of the best prices of the trading day. Despite the drawback of not having the ability to take part 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 obtainable in the underlying market during standard trading hours.

DMA CFDs have become accepted amongst day traders and scalpers. The key reason for their popularity is because DMA CFD providers allow CFD trades to flow onto the underlying market in the equity on which the CFD is based allowing active traders to make the most of relatively small price changes. Using DMA CFDs also permits 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 don’t offer guaranteed stop loss orders. Guaranteed stop loss orders have the benefit of allowing the trader to control their downside risk. Slippage often occurs when using stop-loss orders, guaranteed stop-loss orders remove this risk completely.

It is important to be conscious that before opening a CFD account you should bear in mind that when trading DMA CFDs you’ll required to deposit a larger initial margin amount than the over-the-counter (OTC) kind. In addition to higher margins many DMA CFD companies will be unable 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 offering DMA CFDs, the most popular platforms in the Australian market is webiress. WebIRESS offers the speed and reliability day traders and scalpers need as well as a selection of different order types such as trailing stop-loss orders. Another common platform is ProDeal, ProDeal offers all the benefits webIRESS offers with the additional benefit of being able to trade over-the-counter CFDs from the same platform enabling traders to trade CFDs on indices and forex from their DMA CFD account.

It’s essential that before making the commitment to begin trading DMA CFDs you recognize the risks connected with the product. Like all geared products trading CFDs can offer substantial rewards on the other hand there are also risks involved that if not managed right can lead to losses greater than the investors initial deposit.

Before picking a DMA CFD provider you should ensure that you test their demonstration platform and read their Product Disclosure Statement which outlines in detail the fees and charges, gives trading illustrations, and outlines the kinds of CFDs offered together with the risks and benefits of trading CFDs. You must make sure that the Contract for difference provider you select is able to offer you the platform and products that suit your trading plan.

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