Retail and institutional investors are able to trade leveraged products such as options and Contracts for Difference (CFDs) on Shares (equities), indexes, commodities and currencies with a bewildering variety of brokers, exchanges and providers. Most CFD traders want a single point of access to several different equity markets worldwide and to be able to trade under conditions of anonymity. There are two main types of providers of these services: one is the Direct Market Access platform model (Such as stock brokers, Option brokers - as opposed to the option Market Maker - and some CFD providers) and the other is the Market Maker platform model (some CFD Providers, financial spread betting providers)
As a trader or potential trader in the stockmarket  it is essential to compare the differences between these two types. More specifically, as a trader you must understand and compare the fee structure associated with both, because it's the fees that you pay that can eat up your profits or worse, increase your loss.
We will take out brokers from the following comparisons as they trade directly into the exchanges (i.e. equity, options and futures exchanges) and instead concentrate on CFD trading with CFD providers who are over the counter (OTC) derivative providers.
The Direct Market Access (DMA) CFD trading platform mirrors the prices and liquidity that are present within the exchange (i.e. the Australian Securities exchange or ASX), however, in very limited circumstances a CFD Trader may find the DMA Price may not match the prices on the underlying exchange, hence it is very important to read the Product Disclosure Statement (PDS) for the CFD provider to find out when this may occur.

With the DMA CFD provider model, the CFD trader experiences:

• no additional spreads;
• straight through processing;
• potential to be a price taker or maker, and;
• participate in opening and closing market auctions.

DMA providers should make no make no profits directly from performance of the client who is CFD trading as most have a 100% hedging methodology. This means that if you buy the CFD, the provider will instantly buy the underlying equity.

In comparison, the Market Maker (MM) CFD provider model:

• doesn't always have the same prices as the exchange,
• there is potential for additional spreads and potential requotes
• Market makers are price takers only,
• generally there is no participation in opening and closing market auctions and
• as they have an alternative hedging methodology, there is the likelihood that they will profit directly from the performance of a clients position.

Whilst CFD trading, if you receive requotes on your CFD orders from a market maker CFD provider, the chances are that you are receiving a price that is skewed against you – hence costing you money. However the MM brokerage rate may be lower which could compensate for the cost of the spread.

When comparing the two, the most important consideration to the trader is the cost to use their respective products. A couple of years ago the difference in brokerage rates between Direct Market Access and Market Maker models would have pushed the CFD trader towards the Market Makers, however with the Direct Market Maker CFD providers lowering their brokerage rates, the pendulum seems to have swung back in their favour.

Consider your brokerage costs on your returns. Firstly, check the commission to enter and exit a CFD trading strategy and with respect to market makers, how much difference is there between the actual exchange price and spread compared to the price and spread offered by the market maker. There is no point in accepting cheaper "headline" brokerage commissions with the Market Maker CFD providers if the spreads they offer, or the requotes, increase the cost of your CFD trading. more information can be found at; http://www.shareselect.com.au