Direct Access Trading (DAT)

What Does Direct Access Trading Mean?

Direct access trading (DAT) is a technology system that empowers stock traders to trade directly with another client, a market maker on Nasdaq, or a specialist on the floor of an exchange, all without broker interference.

Understanding Direct Access Trading (DAT)

Direct access trading (DAT) is the preferred trading system for day traders, for whom achievement is dependent upon the speed of execution as prices change within seconds. For the average investor who holds stock for quite a long time or even many years, DAT isn't required. There are numerous DAT systems for traders to browse, and they differ in speed, precision, and the commission price charged for each trade. Most direct access firms charge commissions in view of trading volume, and on a for each share basis. Retail brokerage firms, then again, charge on a for every transaction basis.

The Nasdaq was the main market to permit DAT, however numerous others have taken action accordingly. Before the rise of DAT systems, traders would need to place orders to buy or sell stock through a traditional brokerage firm, which could create issues with postpones in trade execution and the inability to get the best market price that anyone could hope to find. DAT's lack of a middleman means that transactions are executed in milliseconds and traders' computer screens display confirmations instantly.

The Benefits and Features of DAT

One of the key highlights of DAT is access to a software program for trading called a Level 2 screen. This program empowers traders to see a complete rundown of bid and ask prices, as well as the spans of the orders, which gives the trader significantly more important information and a greater opportunity for profit. After a trader picks a price to place the order, just a single click is required to initiate the trade, and afterward the trader must enter the number of shares for the order. Some direct access systems permit a trader to choose a default value to be placed consequently, allowing a trader to order, for instance, 1,000 shares without having to physically enter four extra keystrokes each time, which can save time and be more helpful.

DATs likewise empower traders to trade on electronic communications networks (ECNs), completely electronic stock exchanges in which orders are executed directly from the trader's DAT and sent to the ECN within a negligible portion of a second. With most DAT systems, traders can decide to send their orders to a specific market maker, specialist or ECN, while online retail brokerage firms as a rule work with their own in-house specialists.