DMA or Market Maker
There are two business models which over-the-counter (OTC) Spread Betting providers offer clients: Direct Market Access (DMA) and Market Maker models.
The key differences between the models relate to the price feeds received by clients and the hedging methods of providers.
Direct Market Access Spread Betting
FP Markets believe that providing Spread Betting via Direct Market Access is the best model available. It’s fair, transparent, flexible and speedy. What you see is what you get.
Firstly, you see what trades you are making. DMA traders are "price makers"; they can enter and see an equal order flow onto the queue of the underlying exchange.
Secondly, you know the cost involved. As price-makers, you receive true LSE prices on every trade.
Thirdly, you get more options. Real-time execution with guaranteed market prices also allows more flexibility: you can participate in the order book as well as the opening and closing phases of the market.
Finally, your trades are quicker. In comparison to the Market Maker model, DMA means no dealer intervention and therefore no price re-quotes and order rejection. It also means much faster execution.
With FP Markets, it’s not just equity Spreads that are Direct Market Access; our whole range of global products is completely transparent. Hedging 100% of client trades ensures that our interests are completely aligned with that of our client.
Meanwhile, the price feed comes directly from the market rather than the dealer. The flow chart below shows how:
Market Marker Spread Betting
Market Maker Spread Betting is different from Direct Market Access Spread Betting in crucial ways that we, at FP Markets, believe are disadvantageous for clients:
Less Transparency: Market Makers derive their prices from the underlying market but usually add a spread. So, prices are not identical to market values. As an intermediary, a Market Maker has the ability to alter prices in their favour, causing slippage that can be a significant cost to trading.
Less Control: Market Makers do not hedge 100% of their client's positions, and have the potential to profit from client losses. When trading through a Market Maker, orders are at the discretion of a dealer.
Less Speed: Spread Bets are not placed directly on the market but flow through a dealer. This results in orders being filled at inferior prices. Trading is slower, especially in fast moving markets.
With Market Maker Spread Betting, all orders and price feeds flow directly through a dealer and all decisions are at the dealer’s discretion. The flow chart below illustrates this:
What are the Core Differences?
|Direct Market Access||Market Maker|
|Price is Identical to the Exchange||✓||✗|
|Liquidity is Identical to the Exchange||✓||✗|
|Complete Price Transparency||✓||✗|
|Orders Flow onto the Underlying Market||✓||✗|
|Real Market Liquidity||✓||✗|
|Participate in Open and Close Market Phases||✓||✗|
|Trades are 100% Hedged||✓||✗|
|Potential to Profit from Client Losses||✗||✓|