Direct Market Access Brokers

Direct Market Access (DMA) brokers offer fast execution times while reducing slippage. As the name suggests, they remove the middleman, providing direct access to financial assets, such as stocks, forex and precious metals. This guide will explain how direct market access trading works, alongside the best DMA brokers in 2024.

What Does DMA Mean?

Direct Market Access simply means that you have immediate and complete access to major exchanges like the New York Stock Exchange (NYSE) and the London Stock Exchange (LSE). As a result, you can view the full order book and buy and sell assets with the best conditions. Importantly, this means that you can sell your stocks to the investors offering the most competitive prices whilst minimizing price slippage.

How Do DMA Brokers Work?

DMA brokers facilitate online trading directly on an exchange rather than acting as a middleman that manages and completes orders on your behalf. Middlemen are also known as market makers and they essentially work to find a buyer for the asset that you want to sell. The downside with this approach is that you have less control over the order book and who takes the opposing side of your trade.

Importantly, DMA brokers follow a non-dealing desk (NDD) execution model. In contrast, the market maker model that operates via a network of intermediaries is known as over-the-counter (OTC) trading.

Within the world of NDD and DMA brokers, it’s also useful to understand the two primary systems:

STP

Straight-through processing (STP) brokers route orders to their liquidity providers, typically comprised of large banks and hedge funds, that take the opposing side of your trade. The liquidity providers who offer the most competitive spreads/prices normally become the counter-party to your position. STP brokers make their money by applying a mark-up to the spread.

Importantly, DMA brokers usually offer faster execution speeds than STP providers.

ECN

Electronic communication networks (ECN) act as central liquidity hubs, comprised of interested buyers and sellers. Unlike with the STP model, liquidity providers in the ECN system typically remain anonymous. ECN brokers also require larger order sizes, generally starting at 0.1 lots and charge fixed commissions with ultra-low spreads.

One key benefit of ECN brokers is that investors can sometimes trade outside of traditional market hours.

How To Compare DMA Brokers

With various brokers offering DMA trading models, finding the best platform can prove challenging. To help, we’ve listed the key factors to consider:

• Routing Technology: The best DMA brokers facilitate ultra-fast trade executions through advanced routing techniques. This relates to the process of accessing respective exchanges and order books. The IG Group, for example, champion the L2 Dealing platform.
• Costs: A key consideration is the fees charged. Costs can come in the form of account registration charges, deposit and withdrawal fees, plus spreads and commissions.
• Regulation: The top DMA brokers hold a license with trusted regulators, such as the Cyprus Securities & Exchange Commission (CySEC) in Europe. Other top regulators include the SEC in the USA, the FCA in the UK and the ASIC in Australia. Importantly, regulated DMA brokers usually offer the best protection for retail traders, from limits on leverage to negative balance protection and investor compensation schemes.
• Customer Support: Leading brokers have a responsive and on-hand customer support team. This is particularly important for beginner investors. Check the customer service team offers 24/7 or 24/5 support via the channels you are comfortable using, such as live chat, telephone or social media.
• Trading Platform: Similar to non-DMA brokers, the platform you use will have a significant impact on your trading experience. For traders searching for the fastest executions, look for interactive platforms that offer one-click trading and automated investing capabilities, such as cTrader or MetaTrader 4 and MetaTrader 5 from MetaQuotes.
• Reviews: It can be hard to tell how good or bad a DMA broker is until you start trading with them. Fortunately, customer reviews from other traders can offer helpful insights. And while these may just be opinions, they can still be useful.

Getting Started

To start trading with direct market access brokers, follow these steps:

1. Firstly, find a DMA broker that offers access to the financial markets you are interested in, for example, forex, stocks, CFDs or cryptos
2. Sign up for a live account and deposit funds. Note, you may need to provide personal information to verify your ID. Platforms also have varying minimum deposit requirements
3. Request permission for DMA trading. You can usually either call or email the support team
4. Download the mobile app or desktop trading platform. Some brokers’ terminals are also available via a web browser
5. Identify an opportunity on the Australian Securities Exchange, for example, and take a position

Benefits

Benefits of trading with DMA brokers include:

• Rapid trade executions with limited price slippage
• Typically lower transaction fees versus OTC trading
• Optimized for automated trading strategies and robots
• Increased market transparency with better visibility of order book information
• Greater control over the trading process with unfiltered access to potential buyers and sellers

Risks

There are also some drawbacks to DMA brokers:

• Restrictions in place through rules and regulations that can limit trading activity
• Complex method of trading that comes with risks from using floating spreads rather than fixed spreads

Bottom Line on DMA Brokers

DMA brokers can help improve your trading experience. Benefits include greater order book control, access to more information and faster trade executions. But before opening an account with a potential provider, review the various features available, from the platform and pricing schedule to the range of assets. Also use this guide to understand what direct market access trading is before you get started.

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