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There are many cfd brokers in the market in response to the growing popularity of the cfd market. Cfd's (contracts for difference) have arisen in recent years in markets such as the United Kingdom and Australia that do not have the diverse range of futures products on offer to the same extent as the United States. Cfd's are a leveraged instrument that are a contract on an underlying physical product. Traders put up a margin in much the same way that a futures contract operates. However, the margin required by cfd companies is sometimes as little as 1% if the product being traded is an index product. There can be a
difference in product offerings, margin
requirements and platforms provided by cfd brokers. Some brokers do not
carry index based products on domestic or international indices. In
other cases, brokers charge an access fee for the platform they provide
traders including monthly data fees. Account opening requirements can
also differ with some companies running specials that allow traders to
open an account with as little as $1000. Brokers are also dispersed
geographically so the products they offer are often directly related to
the customer base they service. Another factor to
consider is the type of market model
being used by the cfd broker. Presently, there are two different
models: the market maker model and the direct access model. The direct
access model does not involve the imposition of a spread on the prices.
The quotes offered mirror that of the underlying market. In the case of
the market maker model, the company responsible for the cfd dealing
provides a spread between the prices slightly above or below the
physical market. The market maker model can present challenges for
traders during fast
markets if prices are requoted or the bid/ask
spread widens considerably. Many of the cfd
brokers offer demo platforms that you
can download to test the functionality of the platform. Sometimes the
features are restricted but you can use the platform to determine how
the market operates. Exchange traded
cfds are a new product that will be
appearing in the Australian market in the months to come. A select
group of cfd brokers have been working with the ASX to integrate this
product into their platform. This product will function in much the
same way as traditional cfd's except that the mechanics of operation
are slightly different since it is traded through a live market as
opposed to a market maker. |
