Online brokers are at present the most convenient and often the least priced trading system available. Then again, anybody with a credit card and an internet service may access them. The problem with standard, run-of-the-mill internet brokers, is that they have excruciatingly slow order execution. Certainly, amateur traders excited about their business will soon understand that speed may be a vital part of earning a profit. The mechanism for placing orders and making trades is a critical tool for traders. The best direct access trading platform (DAT) systems are the most user-friendly and lucrative for traders.
This article will give a prelude to DATs so you can decide if you need them.
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What Exactly are Direct Access Trading (DAT) Systems?
A direct market access trading platform lets traders trade stocks straight with a market creator or specialist on the exchange’s floor and gets quick order execution. The system erases the need for a middleman, which is common in internet brokerages. The lack of a middleman can save a trader anything from a few seconds to several minutes.
Whether beginners or experts hired by major financial institutions, sole traders must go against one another in trading. Professional traders will always get access to the most up-to-date training and tools. Also, the quickest buy and sell orders. As a result, it stands to reason sole traders have the finest system available to compete. Anything less might put them at a competitive disadvantage when it comes to purchasing and selling orders.
However, not every order execution system is the same. Even with all of the existing direct access trading platforms, there is a variety in accuracy and execution speed, and charges imposed for each trade. As a result, traders must use caution when selecting a strategy that fulfills their requirements.
Let’s take a closer look at how different aspects of specific DATs may fit a trader’s unique style and demands. It should be noted that this debate is limited to stocks. Other financial products are exchanged similarly, although they may require minor adjustments to fall under the following basic rules.
Level II Quotes
Because DATs eliminate the intermediary, traders with a computer and an internet connection may directly connect to the markets. This provides the trader with additional knowledge and increases their chances of success. This is due to something known as a Level II format.
A Level II screen provides the trader with a comprehensive list of bid and ask prices and also order sizes for each stock in question. The trader will select the price for the order before beginning the trade—usually with only one click. The only thing left for the trader to do is determine how many shares to include in the order.
A pop-up window is opened, and the order size is entered. Specific systems allow a default number to be automatically pasted, allowing the trader to order, for example, 1,000 shares without having to enter the additional four keystrokes. Several traders will have a “normal” order size, and using the preset number may be a huge time saver.
In Direct Market Access, How are Trades Executed?
A trader puts an order to acquire securities using an online trading platform.
The order is subsequently entered into an electronic trading book, and data is sent to exchange servers.
The stock exchange receives the order, and it can be completed once the trader’s buy price meets a seller’s price.
Who Benefits From Direct Market Access?
Because of the potential for problems, the stock day trading platform is only suggested for expert traders. For instance, traders receive access to advanced trading methods, like algorithmic trading, better suited to experienced traders.
Due to the need to execute orders in huge quantities, it is also appropriate for investors wanting to place significant volumes of transactions.
Users include buy-side businesses like private equity funds, pension funds, mutual funds, and hedge funds, in addition to private traders.
Advantages of DATs
Using direct access trading systems may provide numerous advantages to active traders. Here are a few examples:
- Other brokers charge a commission fee for every trade since they sell order flows. On the other hand, DATs do not sell order flows and instead get rebates that they pass on to their clients, therefore the lowest online brokerage fees.
- DAT transaction costs are similar to those charged by retail brokers. While these fees are usually charged per share at DAT, other brokers’ fees may be greater since they are often charged per transaction.
- Trading is fast, which implies there is no lag time. A deal may generally be completed in a matter of milliseconds.
- The investor can access high-frequency trading, a sort of algorithmic trading strategy that uses high-frequency data and trading instruments to create high turnover rates and high speed.
- Because there are no third-party suppliers engaged and trading is done anonymously, there is less chance of the investor’s personal information being exposed. When trading, the investor will use the identity of the direct market access provider rather than their own.
- The investor is given a turn to participate in both post-market and pre-market auctions.
- Because the investor rather than a broker control transactions, the latter will have higher control over the trade order (s).
There are several ECNs and DATS available. You must carry out a study to determine which day trading platform is the best. While many of these methods are already well-established amongst traders, the sector is still in flux. In tomorrow’s trading environment, today’s systems may become “also-rans.” So, while selecting your systems, keep your alternatives open and never become too attached to a specific business or software package.
As a trader, the best course of action is to keep a backup plan in place in case your existing manner of doing business unexpectedly changes due to, for example, the bankruptcy of your system supplier or system failure. The intelligent trader is fully ready for any condition and is ready to pivot on a dime if their company model suddenly changes.