You lose, they win: so whose side are market makers on?

The largest direct market access providers include E*Trade, CommSec, Macquarie and MF Global. The largest market makers are the country's largest providers, IG Markets and CMC Markets (to confuse matters, they also offer customers "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, and their risk has been laid off, or hedged, as much as possible.

In the second model, 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.

CFD training provider Seismo's managing director, Jim Taig, questions some of the practices of market maker providers.

"Direct market access CFD providers make money through financing costs and brokerage," he said.

"Market maker CFD providers make money through financing costs, brokerage and potentially from the client's variation margin (specifically losses) if the CFD provider has not hedged your positions (either partially or fully) into the underlying market.

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

Taig adds: "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 to the share trading on the ASX at $40 [the actual price]," he said.

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

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