Choosing a CFD Broker
As you may know there are two different types of CFD Brokers.
Market makers (MM) – Use a MM for the Switch Trading Strategy
Direct Market Access (DMA)
For the purpose of trading the Switch method we need the Market Maker (MM)
The premise for this, is I want my Trade Order filled when the market opens.
What does this exactly mean?
If there was a Long Switch Trade set-up, that had the entry price at $9.01 and the market opened at $9.02 then a DMA broker would not execute the order, but a MM would execute the order. It is better to be filled when a market gaps open than not, this is simply because the market is moving in your favor.
When would I use a DMA?
If I were scalping stock with intraday charts then the DMA would give me the actual market price and access to the market depth.
I know there is a lot more information on the differences between the types of CFD Providers, but the bottom line is that the Switch requires the Market Maker
The next question would be, well which one?
The safest one would be a good start, I don’t know about every country, but in Australia the brokering companies that have failed are the brokerage companies that have traded for themselves and along the way they have blown up their own trading account and many times clients’ money with them, so it stands to reason, you would use a brokerage company that does not trade for themselves, but only execute orders for their clients. You can normally ask a company this and they will tell you.
There is also a lot they won’t tell you, but the main point is that your clear they don’t have their own discretionary trading account.
Its fine for them to have their own hedging account, because a part of a CFD brokers Book will be hedged with another broker.
Brokers normally have a client A and B book, all the clients in one book will be hedged and all the other clients in the other book won’t be hedged.
If you have a winning account then your likely to be hedged. So, they would have to take opposite position in another market, which in turn could affect the price of the market – this is way it’s so important while you’re in the learning about CFD trading to read your CFD providers Product Disclosure Statement (PDS) I have noted a few common CFD Providers below.
PLEASE NOTE: Also choose a CFD provider that is registered by the financial regulator in your own country and not in Cyprus or any other island that may not have a phone number etc. you don’t want to go to court in another country where you don’t know the law
Take the time to read your CFD Brokers PDS!
Product Disclosure Statement (PDS)