How To Select A CFD Broker
There are lots of CFD brokers that you can choose from. To select a CFD broker there are a few factors that can help you to narrow down the field.
Three Ways To Execute Your Trades
CFDs can be traded three different ways:
- Market Maker
- Direct Market Access (DMA)
- ASX CFDs
When using the market maker execution model orders are placed and traded with the CFD broker. The Broker may then hedge their position by entering the same trade in the underlying market. They do not necessarily enter every trade that their client’s do.
Direct Market Access orders are not traded with the CFD provider, but instead are traded on the physical exchange. Your CFD order is filled when the order on the underlying exchange is filled.
ASX CFDs use a central order book in much the same way as stocks are traded. All orders are placed into the order book and the ASX computers execute the trades by matching together buy and sell orders.
Step 1 for Choosing a CFD Broker
Which markets you want to trade will go some way to determining which execution model you choose. Currencies, shares and indices are all traded via the market maker model. ASX CFDs also offer a limited choice of these underlying instruments as well.
Direct Market Access (DMA) is usually applied to ASX stocks only and is not available for the other markets. If all you want to trade is ASX stocks then you can choose from any form of execution.
Select Your Type of Stop
Guaranteed stops are available through a market maker platform only. The exception to this rule is Macquarie that combines both DMA and guaranteed stops. If you want to use guaranteed stops then this will determine which method of execution is better for you.
To trade during the auctions at open and close you will have to use either DMA execution or ASX CFDs. The market maker model does not allow you to participate in the opening and closing auctions.
When you place an order with ASX CFDs or you use the DMA model you will see your orders appear in the underlying security. If this is important to you then opt for one of these forms of execution.
Which Platform Do I Use?
Whichever CFD broker you use there are a wide variety of trading platforms available. Trading platforms typically include quotes, charts, and news feeds. All your CFD trades can be executed through these platforms with a variety of different types of orders.
Test drive the platforms using the free trials that the CFD brokers offer to find one that suits you. The trading platform will often make the decision for you on which is the best CFD broker.
Make sure you consider all of your options before you decide which is the best CFD broker for you.