No Spreads?!

[cigarno]

With the Market Maker( MM) account, when you trade Stock CFDs there is only a commission you have to pay. There are no spreads widening, meaning the spread between the Stock CFD and the underlying Stock are the same.
With the Direct Market Access( DMA) account, there are no spreads widening either. But you need live price for the DMA account in order to place orders directly at the exchange.
Is this true??

[SJCFDs]

Hi Cigarno,

Can i ask if you are talking about trading systems provided by a specific brokarage/trading firm? Or are you talking about market access systems generally?

Using the FTSE as an example - the trading systems used for different stocks are applied according to size and liquidity of particular stocks.

For example the FTSE 100 (top 100 shares) are traded on what's called the SETS trading system. These are the most heavily traded and liquid stocks in the UK - therefore the SETS system, which uses buy/sell limit orders as their bid/offer spreads is sufficient to keep spreads tight and liquidity high (due to the sheer volumes traded)

The FTSE 250 shares (the 250 biggest OUTSIDE the FTSE 100) are traded on what is named the SETSmm system. This uses a combination of the buy/sell limit orders above, but also incorporates the concept of "market makers". This is due to the lower volumes traded - so specific firms are set up as MMs of specific stocks in order to increase liquidity. These MMs must abide by strict rules (such as being bound by their bid/offer price up to the size of the "normal market size" for that particular share. Different shares have different NMSs)

So when you talk about MM systems Vs DMA systems - i was just looking for some clarification.

When using a DMA (of which there are several providers on the FTSE - e.g. X-trader, Real Tick etc.), the provider is bound by the system that the actual exchange has set up that particular stock to use.

As a simple answer (guess) to your question - "do you need live prices to execute buy/sell orders on DMA systems?" - my answer would be - yes - almost by definition.

You would NOT want to start sending orders through a system with delayed prices.

Does that make sense - maybe i have missunderstood your question. My guess is that if you order is sent through an MM system - it will be picked up by a Market maker who will execute at best price. Perhaps that is why the MM system allows buy/sell orders on delayed prices.

The DMA system will just execute automaticall and you will be worse off if trading on delayed/incorrect prices.

If your system has been provided by a 3rd party borker - then perhaps only they can answer your question.

I hope that is of some help to you - if i have missunderstood anything, please clarify and i will try and explain again.

[SJCFDs]

Just as a last thought - really, there is no "physical market" for CFDs. CFDs are contracts taken up withh 3rd parties, who will hedge their exposure in the "physical equity market"

That leads me to beleive that your DMA is provided by a 3rd party who find it easier to let clients execute their own orders and hedge on a flow basis.

In this case - each 3rd party may have different rules/limitations of their systems.