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My understanding of CFD providers in UK is that they try to imitate the real market action by being market makers. However, is it a risk that they may withhold liquidity in a market panic crash to protect their own capital? Will their clients be unable to sell at a fair market price in a panic crash? Also, do CFD providers sometimes make an occasional downward spike to cream off their clients' cut-loss order? Since they are market makers, what is to prevent them from attempting these tricks? Are these concerns also valid for forex brokers serving the retail public?

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    Please add location. CFD isn't legal in US, but of course, SE is worldwide, location will get you answers, and me, a welcome education. Oct 18 '13 at 15:54
  • I have added the location as you suggested. Thanks.
    – curious
    Oct 18 '13 at 15:58
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However, is it a risk that they may withhold liquidity in a market panic crash to protect their own capital?

Two cases exist here. One is if you access the direct market, then they cannot. Secondly if you are trading in the internal market created by them, yes they can do to save their behind, but that is open to question. They don't make money on your profit or loss, their money comes from you trading. So as long as you maintain the required margin in your accounts, you can go ahead. I had a mail exchange with IG Index regarding this and they categorically refuted on this point.

Will their clients be unable to sell at a fair market price in a panic crash?

No.

Also, do CFD providers sometimes make an occasional downward spike to cream off their clients' cut-loss order?

Need proof regarding this, not saying it cannot happen. They wouldn't antagonize the people bringing them business without any reason. They would be putting their money at risk. But you should know, their traders are also in the market. Which might look skimming your money, it would be their traders making money in the free market. After all Google, Facebook etc also sell your personal data for profit, why shouldn't the CFD firm also.

Since they are market makers, what is to prevent them from attempting these tricks? Are these concerns also valid for forex brokers serving the retail public?

What you consider as tricks are legitimate use of information to make money.

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