Direct Access Trading (DAT) or Electronic Direct Access Trading (EDAT) is the trading of financial instruments with Direct Market Access (DMA). Compared to traditional brokers or online brokers direct access trades are executed much faster, with in fraction of a second. Direct access trading is a simple trading process which does not require any broker assistance and involve much cheaper commission rates.
In direct access trading, the trades are executed through stand alone trading platforms installed on traders computers connected to high-speed electronic networks. These platforms provides level 2, some level 3, access to markets, which enable traders to monitor the bid and ask prices in real-time with the size of orders and the registered market maker name quoting the price. By just clicking on the desired price, the trader can execute his or her trade. The trader can also enter the number of stocks or other financial instruments he/she wants to trade or can use a default value like 1000, and can route the order to his choice of market marker or ECN.
Direct access trading is mainly practiced by day trades or other active traders like scalpers, swing traders and momentum traders. The major benefit they get from it is the speedy execution of trades. Trading through online brokers can take from seconds to many minutes and the delay can be harsh in situations where many orders, all trades are for same type (buy or sell), are to be executed. The delay is mainly because of the human interference the broker who decides the market maker to whom the orders are routed. But in direct access trading there is no such human interference and the orders are executed in real-time, the results can be seen just after clicking on the execute button; providing more time to the trader to find tradable instruments.
The transaction fees involved in direct access trading are usually much less than traditional and online brokers, usually from $5 to $35 per trade. The commission per share usually drops with the increase in number of trades performed and quantity of product traded. The brokers also charge ECN fees and Platform usage fees on traders, which too also decrease with the above two situations. Also note that many online brokers offer more than one trading platform differing quality and monthly usage fee. The traders also have to maintain a specific account minimum. Many brokers charge inactivity fees on those traders fall to fulfill the activity minimums.
Direct access trading involve as much as risk with any other form of trading. In fact, DAT is only for experienced traders who are ready to execute trades without the help of any experienced broker. The major advantages of direct access trading includes speedy execution, advanced trading platform, slippage control, direct control over trades, and liquidity rebates. DAT is not for long-term investors, position traders, inactive traders and novice traders.