You bet your loss is a market maker's gain

The largest direct market access providers include CommSec, Macquarie, MF Global and E*Trade. The largest market makers are the country's largest providers, IG Markets and CMC Markets (they also offer direct market access services).

In the first model, every CFD sold is based on a linked trade in the underlying market the product is based on, meaning every trade is 100 per cent hedged. These providers perform as brokers, placing a series of orders. Their risk has been laid off, or hedged, as much as possible.

In the second, every CFD sold is not linked to a trade in an underlying market, and the amount of hedging can vary. These providers act as "principals", deciding at what level they should hedge, or lay off the risk of their trades.

A direct market access provider with 100 per cent hedging will simply act as a broker. A market maker with no hedging will profit from investor losses. Conversely, the risk comes in for the market maker when the investor wins.

The managing director of CFD training provider Seismo, Jim Taig, questions some market practices. "Direct market access CFD providers make money through financing costs and brokerage," he said.

"With CFD market makers there is a mechanism for your losses to go straight into the CFD providers back pocket, and this is why they often have the most profitable CFD business model," he said.

"I believe a market maker CFD provider taking the other side of a client's trade to be unethical, as they are essentially trading against their client. They effectively supply the CFD product, charge brokerage and finance costs, make up the prices (with spread costs) and then take the other side of the trade against the client all at the same time. Direct market access CFD providers do not trade against their clients."

Taig's critique includes the way the market makers price their trades.

"Market makers make the prices that you then have to take from them. Market makers can requote the price whereby they might sell you a CFD over a share for $40.05, compared with the share-trading on the ASX at $40.00 (the actual price)," he said.

Others experts say market makers reduce the margin or amount of money down to attract those willing to take riskier bets and pump up volumes.

In a casino analogy, this is similar to adjusting the win rate on a poker machine.