Market Makers: Their Relationship to Trading CFDs

We all know that trading CFDs is quite a challenge for newbies. The overwhelming tips and concepts just seem confusing when we do things all by ourselves. Thankfully, there is a group of people called market makers who usually help save our trading sessions. With the help of their tasks, their goal is to  assure that every CFD trader enjoys an easless trade. Is this statement real? You have to keep in reading this article to figure out if Market Markers indeed aid traders or not.  In our discussion, we shall elaborate the answers to some of the commonly asked questions regarding Market Makers and then provide an answer to our question at the end of discussion.

Are market makers also brokers?

The answer to this question is “yes”. Market makers fall under the category of brokers. As a trader, you should be aware that there are actually two types of brokers for trading CFDs. We have Direct Market Access Brokers (DMA) and Market Makers(MM).

What are CFD Market Makers?

Market makers by definition are brokers who are actually tasked to create markets for CFDs all by themselves. Thus, this means that they do not merely act as a medium for the market. They are actually the market themselves because the rates that they set for a particular traded merchandise is the one that prevails in a transaction.

What are the advantages of availing the service of market makers?

1.Liquidity

Most of the time, big banks and financial institutions act as market makers. Since most of these establishments have a large connection to buyers and sellers. Market makers help create a continuous flow of buying and selling transactions. This is called liquidity.

2. Continuous Market Flow

Because they have enough funds to operate, they can also help traders by creating a continuous market flow especially when a trader is in need of a buyer for a particular instrument such as bonds. Similarly, if you need to purchase a financial instrument they are also ready to offer the needed product to be purchased.

3. Wholesalers

These groups function as wholesalers by means of purchasing and exchanging merchandise in order to provide a satisfying trade in the market. Their rates rely on the rule of supply and demand.

4. Incentives

As a broker, market makers also have the ability to devise incentives both for the trader and the staff.

What are the risks of availing the services of Market Makers?

1.Cost

Expensenses are more costly when you hire services of market makers due to spreads and commissions.

2. Scams

Some unregistered market makers may be scammers. This means that they can create artificial spreads and improper execution of orders in the market

Conclusion:

With the facts about market makers which we have laid down in this article, we can derive that dealing with this third party as we trade with CFDs  is very similar to availing other trading services offered by trading platforms. Market maker services both have positive and negative effects in your trading experience. Thus, it is strongly suggested that you verify the status of your prospect market maker before finally saying yes to their offers. Make sure that you are dealing with a duly registered market maker to avoid fraudulent transactions with them.

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