I was reading through a CFD broker’s customer agreement form. This CFD broker is a market maker and below are some of the extracts that you should be aware of, especially trading with a market maker:
Your orders are not reflected in the exchange
When you enter into any transaction with us through our Platform, you will be entering into an off-exchange (sometimes known as an over-the- counter, or ‘OTC’) derivative, which is non-transferable. This means you will enter into transactions directly with us, and also that those transaction greater risk than investing in a financial instrument such as a share which is transferable, or dealing in an exchange-traded derivative, because your ability to open and close transactions is dependent on our Platform being in a position to accept orders from you and to execute them. In certain circumstances this may not be possible.
The broker sets the price
Although the prices generated by our Platform will take into account current exchange and market data from various sources, they are not taken directly from any source. This means that our price may be different to any current exchange or market price, or another financial product provider’s price, for the relevant underlying instrument, asset or index. The profits or losses that you make from trading with us will depend on our prices, and not prices prevailing or shown anywhere else.
Broker may not take your order
…The ability of our Platform to generate prices and execute orders is dependent on the availability of prices and liquidity in the exchanges, markets and other venues from which we gather data. In addition, because we maintain our ow financial stability by hedging with other counterparties, we may be unable to execute your orders where we cannot enter into a corresponding transaction to hedge our own risk (for example, due to the activities of an issuer of shares to which your transactions relate, which can sometimes restrict the market liquidity in those shares). Therefore, market circumstances may impact on your ability to place an order or close a transaction with us. In contrast, if we enter into a corresponding transaction, to hedge our risk, this may have an influence on the underlying market conditions and consequently also on the prices we quote on the Platform and your account.
Your money is segregated but broker can claim the amount owe to her
If you are a retail client, money that we hold on your behalf will be held in a segregated client money bank account separate from our own money, although this may not provide complete protection (for example, if the bank that we use becomes insolvent). Money that is owed by you to us under our agreement will be transferred from the segregated client money bank account to our own account and then be treated as our own money.