DMA vs. Market Made vs. ASX listed CFDs

[AlterEgo]

I have never seen the equivalant order appear in market depth on any orders i have placed via MFG DMA cfd........ am i not looking close enough ? or is it only here and there when they need to cover my position?

I don't know about MFG, but when I place a DMA order with FP Markets, the order appears in the market depth almost instantly. I can trade shares and DMA CFD's on the same platform with them, and to the user there's no apparent difference between them.

 

[Wysiwyg]

I have never seen the equivalant order appear in market depth on any orders i have placed via MFG DMA cfd........ am i not looking close enough ? or is it only here and there when they need to cover my position?

I know you can buy and sell shares in the synthetic market without the underlying shares existing!

 

[AlterEgo]

What risk do they take on in the first place?

The risk of you making a profit. If they weren't hedged, they'd have to pay you your profit out of their own funds.

 

[Wysiwyg]

That is my point exactly. There is only one transaction and that is the client opening a position in the market through the broker. You win they win you lose they lose. No risk has been forgone.

Then the broker debits the client the amount of loss incurred from the trade or credits the client the amount of gain which they extracted from the market.

 

[AlterEgo]

Then the broker debits the client the amount of loss incurred from the trade or credits the client the amount of gain which they extracted from the market.

The client is not extracting the profit "from the market". The client is extracting the profit "from the CFD provider". The CFD contract is only between you and the CFD provider - the stock market is not involved. Nothing goes to the stock market (unless the CFD provider wishes to hedge the position). The CFD is essentially a "bet" with the CFD provider (the "bookie").

 

[Wysiwyg]

If they weren't hedged, they'd have to pay you your profit out of their own funds.

Then that would not be a DMA trade if they did not take direct market participation. It would be a trade in a synthetic market.

 

[sinner]

The client is not extracting the profit "from the market". The client is extracting the profit "from the CFD provider". The CFD contract is only between you and the CFD provider - the stock market is not involved. Nothing goes to the stock market (unless the CFD provider wishes to hedge the position). The CFD is essentially a "bet" with the CFD provider (the "bookie").

This is the opposite of what you said a moment ago. If there is a parallel contract running in the market, then the market IS involved. What the hell are you talking about?

 

[Wysiwyg]

The client is not extracting the profit "from the market".

The sentence is about the broker.

Then the broker debits the client the amount of loss incurred from the trade or credits the client the amount of gain which they extracted from the market.

 

[AlterEgo]

Then that would not be a DMA trade if they did not take direct market participation. It would be a trade in a synthetic market.

Exactly! A "market maker" does not take a position in the real market, but a DMA provider does (which is their hedge).

 

[Wysiwyg]

(which is their hedge).

Is not! :

In finance, a hedge is a position established in one market in an attempt to offset exposure to price fluctuations in some opposite position in another market with the goal of minimizing one's exposure to unwanted risk.

In finance, a hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment. The term is a shortened form of " hedging your bets", a gambling term. Typical hedgers purchase a security that the investor thinks will increase in value, and combine this with a "short sell" of a related security or securities in case the market as a whole goes down in value.

A security transaction that reduces the risk on an already existing investment position. An example is the purchase of a put option in order to offset at least partially the potential losses from owned stock. Although hedges reduce potential losses, they also tend to reduce potential profits.

Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.

 

[AlterEgo]

This is the opposite of what you said a moment ago. If there is a parallel contract running in the market, then the market IS involved. What the hell are you talking about?

No, not the opposite of what I said before. We're talking about 2 different things on here, "market maker" and "DMA provider". If there's a parallel contract running in the real market, then that is DMA. I was talking about "market maker".

 

[sinner]

No, not the opposite of what I said before. We're talking about 2 different things on here, "market maker" and "DMA provider". If there's a parallel contract running in the real market, then that is DMA. I was talking about "market maker".

Maybe you should be more specific then?

If you are a DMA broker, and a client provides funds for you to make a trade, you take those funds to your liquidity provider to get the leverage. You place an order with the funds and leverage on the market, and provide your client with a parallel contract. If your client loses, there is less money on the table than at the beginning so they pay the difference to you. If your client wins, there is more money on the table than at the beginning, they take their profits and funds home, you return the leverage to your liquidity provider, that is it. There is no hedge. There is no risk taken on. Stop saying there is a hedge unless you can explain what you mean better or correct my interpretation of what happens.

If comsec provides me with a $10,000 margin loan then they don't care about which contracts I'm trading (as long as they're the sanctioned ones of course), just that at the end of the day they get their loan + interest back. At no point do they they become out of pocket if you win a trade. In which case would it be different and why?

 

[AlterEgo]

Maybe you should be more specific then?

If you are a DMA broker, and a client provides funds for you to make a trade, you take those funds to your liquidity provider to get the leverage. You place an order with the funds and leverage on the market, and provide your client with a parallel contract. If your client loses, there is less money on the table than at the beginning so they pay the difference to you. If your client wins, there is more money on the table than at the beginning, they take their profits and funds home, you return the leverage to your liquidity provider, that is it. There is no hedge. There is no risk taken on. Stop saying there is a hedge unless you can explain what you mean better or correct my interpretation of what happens.

If comsec provides me with a $10,000 margin loan then they don't care about which contracts I'm trading (as long as they're the sanctioned ones of course), just that at the end of the day they get their loan + interest back. At no point do they they become out of pocket if you win a trade. In which case would it be different and why?

You seem to be making a simple concept overly complicated. The Comsec example is different, because you are buying the shares from the market, NOT from Comsec. Your profits comes from the other market participants, not from Mr. Comsecs' pocket. An analogy would be playing a game of poker for money. Your profits come from the other players, not from the dealers' pocket. Comsec is like the dealer, Comsec just facilitates the transfer of shares from one person to another.

A CFD contract is different though. It is a contract between you and the CFD provider ONLY. No shares are involved, no other market participants are involved, it's purely a contract between YOU and the CFD PROVIDER. An analogy would be making a bet with a bookie at the races. If you win, your profit comes out of his pocket.

DMA is like the above CFD contract, except the CFD provider has taken a position himself, in the actual stock market, to counter any profit you may make, so he won't wind up out of pocket. That is a hedge!

 

[skc]

This conversation is like a never ending round about... all you need to know is already said below. If you can't understand it then really... you should brush up on your finance terms before trading CFDs

And for the last time, what the DMA providers do is called a hedge! There are 2 transactions.

1. Between you and DMA provider
2. Between DMA provider and market

Transaction 2 is the hedge against 1.

With DMA CFD, they place order in market in their name, and a parallel CFD between you and them. Their market order and your CFD are parallel. Their market order and their end of the CFD are hedged.

There is no controversy in the terms used I don't think.

I have never seen the equivalant order appear in market depth on any orders i have placed via MFG DMA cfd........ am i not looking close enough ? or is it only here and there when they need to cover my position?

You are not looking closely enough...use the "expand" button to see individual orders within each level.

 

[nunthewiser]

Its ok skc ........ A friend in chat pointed something out on MFG earlier that made me realise im a goose . ( i obviously did not admit this, But he will read this shortly im sure )

Alls cool , Cheers