Investor's wiki
en English
Navigation
Home Glossary
InvestingStocksBondsCryptoPersonal FinanceFundamental AnalysisTechnical AnalysisTradingBankingTaxes
Disclaimer Terms of Use Privacy Policy Cookie Policy
Navigation
Home Glossary
InvestingStocksBondsCryptoPersonal FinanceFundamental AnalysisTechnical AnalysisTradingBankingTaxes
Disclaimer Terms of Use Privacy Policy Cookie Policy

Direct Market Access (DMA)

Direct Market Access (DMA)
InvestingMarkets

What Is Direct Market Access (DMA)?

Direct market access (DMA) alludes to access to the electronic facilities and order books of financial market exchanges that work with daily securities transactions. Direct market access requires a sophisticated technology infrastructure and is frequently owned by sell-side firms. As opposed to depending on market-production firms and merchant vendors to execute trades, some buy-side firms utilize direct market access to place trades themselves.

Seeing Direct Market Access (DMA)

Direct market access is the direct association with financial market exchanges that makes the completion of a financial market transaction last. Exchanges are organized marketplaces where stocks, commodities, derivatives, and other financial instruments are traded. The absolute most notable exchanges are the New York Stock Exchange (NYSE), the Nasdaq, and the London Stock Exchange (LSE).

Individual investors commonly don't have direct market access to the exchanges. While trade execution is typically quickly instituted, the transaction is satisfied by an intermediary brokerage firm. While brokerage firms can deal with a market-making quote basis, it has become more normal since the 1990s for brokerage platforms to utilize direct market access for finishing the trade. With direct market access, the trade is executed at the last market transaction phase by the brokerage firm. The order is accepted by the exchange for which the security trades and the transaction is recorded on the exchange's order book.

Intermediary brokerage firms are known to have direct market access for finishing trade orders. In the broad market, different elements can possess and operate direct market access platforms. [Broker-dealers](/intermediary vendor) and market-production firms have direct market access. Sell-side investment banks are likewise known for having direct market access. Sell-side investment banks have trading bunches that execute trades with direct market access.

Direct Market Access Technology

In the financial markets, sell-side firms offer their direct market access trading platforms and technology to buy-side firms who wish to control the direct market access trading activities for their investment portfolios. Instances of buy-side elements incorporate hedge funds, pension funds, mutual funds, life insurance companies, and private equity funds. This form of control over trading activities is considered sponsored access.

The technology and infrastructure required to foster a direct market access trading platform can be costly to build and keep up with. Companies that offer direct market access in some cases join this service with access to advanced trading strategies, for example, algorithmic trading. Subsequently, there are agreements between direct market access platform owners and sponsored firms that frame the services offered and the expectations of the agreement.

Benefits of Direct Market Access

All with direct market access, a trader has full transparency of an exchange's order book and its trade orders. Direct market access platforms can be integrated with sophisticated algorithmic trading strategies that can streamline the trading system for greater effectiveness and cost savings. Direct market access permits buy-side firms to frequently execute trades with lower costs. Order execution is incredibly fast, so traders are better able to make the most of extremely fleeting trading opportunities.

Special Considerations

Market regulators like the Financial Industry Regulatory Authority (FINRA) administer the market's all's trading activities and have raised a few concerns over the sharing or sponsored access agreements offered by sell-side firms. On the off chance that a buy-side firm doesn't have direct market access, then it must partner with a sell-side firm, brokerage, or bank with direct market access to decide a trading price and execute the last transaction.

FINRA's concern comes from the potential market disruption that could happen assuming inadequately regulated direct market access brings about trading errors brought about by PCs or people. The damage from these trading errors could be intensified by high-speed trading automation and high-volume trading. To address these trading risks, the Securities and Exchange Commission (SEC) requires firms that give direct market access to keep a system of risk management controls over the trading activities permitted through sponsored access.

Highlights

  • Direct market access depicts the direct access to the electronic facilities and order books of the financial market exchanges to execute trades.
  • Sell-side firms might offer direct market access on a sponsored basis to buy-side elements, for example, hedge funds, pension funds, and mutual funds.
  • Individual investors regularly don't have direct market access however generally depend on an intermediary brokerage firm for trade execution.
  • Investment banks and other sell-side firms utilize sophisticated electronic trading technology that permits them direct market access to the exchanges.