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CFD providers mirror the market action on the actual exchange. But how good is the mirroring? Do they try to match both the bid-ask prices and the bid-ask sizes exactly? Is it possible that the liquidity provided by CFD be nearly as good as that of the actual exchange?

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It depends if you are with a direct market access provider or a market maker.

With direct market access you are basically trading based on the liquidity of the under security.

With a market maker the provider will try to match the liquidity of the underlying in most cases, but may differ from one provider to another.

  • Thank you very much for the answer. Direct market access really sounds good. Liquidity is better and no "cheating" is possible because the market is real. I wonder why would anyone use market maker CFD with DMA around. – curious Nov 24 '13 at 9:02
  • @curious - sometimes a market maker provider can provide some benefits that a DMA does not. Some benefits include lower brokerage (benefit especially if you are trading a lot), and can provide liquidity when the underlying has very little - eg. If the underlying is illiquid and does not trade for a long period, the CFD market maker will make a bid or ask price available to buy or sell at, however it might have a larger spread than the underlying spread. – Victor Nov 24 '13 at 20:26

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