Direct Access Trading


Direct access trading is an advanced system that allows traders to directly trade in the market without the interference of stockbrokers. By avoiding intermediaries, direct access trading helps in quick execution of orders and thus is highly beneficial to active traders.

How is it Superior to Online Brokers?

The system of direct access trading is an advanced technology that scores over conventional online brokers who take relatively more time in executing orders. While online brokers take a few minutes to execute an order, the direct access trading system conducts transactions in a fraction of a second and the trader receives the confirmation on his/her computer screen instantly. This system makes use of client-side software for trading, which is connected to advanced stock exchanges such as NASDAQ, NYSE via high speed computer links.

Also, in terms of transactional cost this system is preferable to online brokers. Direct access trading generally charges transaction cost per share whereas online brokers charge on per transaction.

Who Can Make Use Of It?

This system is highly beneficial to those traders who look for speedy execution of orders and are capable of making trading decisions on their own without the involvement of intermediaries. These include the following:

  • Day traders - are traders who trade in large numbers per trading day. The system of direct access trading provides them the benefits of heavy discount in commission and brokerage fees.
  • Momentum traders – are traders who make trading decisions based on news and the latest happenings and thus require instant execution to make use of an opportunity.
  • Swing traders – are traders that trade in highly volatile or momentum stocks and thus are highly benefited by speedy order execution under this system.

What Are The Limitations?

  • Direct access trading is not suitable for long-term investors. These investors hold a position for a very long time and thus have to incur a huge cost under this system.
  • Direct access brokers usually pass on some kind of fee to the customers. These include specialist fees, electronic communication networks frees, regulatory fees etc. Online brokers do not pass on such fees to their customers.
  • Some systems charge software fees from its customers. These systems use highly advanced software that help in faster execution of orders.The software fee is meant to cover the cost incurred by them in developing and maintaining the software. However, this fee is not charged if the customer manages to trade up to a specific volume per calendar month.
  • This system also requires customers to maintain activity minimums. That is, the customers who opt for direct access trading will be charged a fee for not attaining a minimum monthly trading volume.