Recently some new traders asked me about contracts for difference and CFDs trading
and in particular in relation to the two business models, Market Maker (MM) and Direct Market Access.
One of the traders asked 'I was interested in trading with SaxoBank (using their SaxoTrader) but they said that their direct market access offering on their platform is only offered to premium account holders who have big accounts. However they stated that there is no real difference between the market maker and DMA on their Saxo Trader platform except for the fact that you can reduce the spread' How true is that?
I'll try and answer a few bits,
I've dealt CFDs with SaxoBank in the past and didn't bother with Direct Market Access as with most FTSE 100 stocks that they are liquid enough so don't need to have limits up. So you save on the commission. A lot of the time they seemed to automatically cover the position in the market.
Who owns the underlying then? The broker? How do they finance the transaction ? At LIBOR and you pay LIBOR + X %?
Who owns the stock...them, you are just making a contract to pay the difference between your entry and exit. The financing would be LIBOR + some if you're long but they won't pay you a thing if you're short in interest.
There are two exemptions to stamp duty and they are if you are a market maker, or a broker dealer. However CFDs don't have stamp duty as you do not take actual ownership of the shares. It is simply agreement between you (the trader) and a regulated provider for the difference between the opening and closing price of a particular financial instrument (or equities
How are Stops Triggered?
Stop loss orders are triggered once a share has traded at your stop level.. for example if your stop level is at 250, then when they trade on the order book at 250 then your stop order will trigger - so if the whole bid is hit then you may end up trading at 249.5 or thereabouts. However, I never felt they were hitting bids to stop me out, anyway too much effort considering how many stops/clients they probably have and also if you've got a 25p stop and it trades down 24.5p chances are that trades a loser anyway.