What is Direct Market Access (DMA) Trading?Direct Market Access (DMA) trading allows private investors to trade shares amongst each other without the need for a broker.Private investors generally buy and sell stocks and shares and other financial instruments from brokers acting as intermediaries with market makers. Using DMA private investors have greater control over their trades, although the middle man nas not yet been totally eliminated, as traders still need to use the services of a broker, albeit one that offers DMA.The advantage of DMA trading is that investors can trade inside the spread. Normally a broker quotes a price such as 320 – 325 which means you buy at 325 but you sell at 320 the 5 point difference being known referred to as the ‘spread’. Clearly if you can trade inside the spread this is an advantage as it means the price of the financial instrument does not need to move as much to ensure that you make a profit.DAM advantages to private investors are:-It creates greater equality.All orders have the same status, they are only prioritized in respect of price and time.Increased visibilityOrders can be seen by the whole market. This allows all participants “full contribution to central market liquidity”.Visibility of the depth of the order bookThis visibility ensures that traders know how many buyers and sellers there are and also the price they are willing to trade at.You can set your own priceLimit orders can be set at the price chosen by the trader and these prices are made available to the whole market.Spreads are smallerLimit orders are on public display, thus ensuring tighter spreads. This benefits the trader who placed the order, who has a greater chance of getting the price specified. It is also a benefit for the market as a whole as the reference price is tighter.Participation in the auctionPrivate traders can take part in auctions pre- and post-market which is where the highest and lowest prices are seen.DMA trading has obvious advantages and I suspect it will become more available as time goes by.
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