If your CFD provider carries a market risk, you are effectively trading against them on how the market will perform. With market-neutral execution, you trade against the market, not against your provider.
How does this work?
Say you decide to buy our UK 100 index for £10 per point. You trade at the live dealing quote on our No Dealing Desk platform (web-based or MT4), and we simultaneously offset our exposure on your position by going long £10 per point in the underlying market.
This way we have no financial interest in whether your position makes a profit or not. If you’re up £200, we’re up £200 in the underlying market. If you’re down £100, we’re down £100. Any money you make or lose to us is offset by our trading in the market.
When you close your position we simultaneously close our trade in the underlying market. Any profit you’ve made is covered by the profit we’ve made by offsetting our exposure. Similarly if you’ve made a loss we’ve made an equal loss in the market.
Unlike the traditional market-maker model, the client and the broker are not on opposite sides. With market-neutral execution we’re on the same side.
No conflict of interest
When a CFD provider has an exposure on your trade (or only offsets part of their exposure) their own return depends on the performance of the market. Essentially, they’ll make a better profit if you lose. So can you trust a provider whose financial interest is the opposite of your own?
We remain absolutely market-neutral on all your trading positions. We never trade against our clients, so our profit never depends on your loss.
The only money we make on your trade is via the dealing charge. It is therefore in our best interest to provide the best possible trading service to encourage your further trading. It’s a mutually beneficial relationship: you make money from winning positions and we make money from the dealing charge.
And because we’re offsetting our exposure, we won’t run up losses if all our clients make winning trades. You win, we win: it’s a completely fresh way to look at the broker-client relationship.