What is direct market access? Definition and example

Direct market access definition & example

What would be your course of action if you wanted to access the books of financial market exchanges to trade securities? You would opt for direct market access. Direct market access enables you to access various financial market exchanges‘ electronic facilities and books. It offers you the facility to trade securities instantly. 

Direct market access uses a technological infrastructure. Most of the time, this technological infrastructure belongs to the sell-side firms. 

Let’s find out more about direct market access.

The meaning of direct market access

Trading on the laptop

Direct market access is a term that denotes access to the financial market exchange’s orderbooks. It also includes accessing the electronic facilities of these exchanges to trade. 

Here are some facts about direct market access:

  • You might not have direct market access if you are an individual trader. 
  • However, you can rely on your broker for your trade execution as they might have direct market access.
  • Various businesses such as investment banks and several Sell-side firms use electronic trading technology that lets them access exchanges. 
  • The firms that were looking to sell their securities might offer direct market access as a sponsorship to the investors interested in buying those securities. 
  • Usually, hedge funds, mutual funds, and pension funds are eligible for direct market access.

Direct market access builds connections between the buyers and sellers in the financial market exchange. It helps in completing financial market transactions. Direct market access makes trading stocks, commodities, derivatives, debentures, and other trading instruments easier. 

Using direct market access has become common for online trading platforms and several brokerage firms. It lets the brokerage firm execute the transaction fast. The brokerage firms place an order for the securities with the exchange. The exchange then accepts the order of trading securities. Thus, after the transaction is finalized, exchange platforms record them in their exchange order book.

Why do people choose direct market access?

Traders choosing direct market access

Many brokers use direct market access because of its advantages. It has several benefits that it offers to traders and brokerage firms. 

  • Direct market access allows traders to look into and exchange order books transparently. 
  • He can also have a look at all its trade orders. 
  • The brokers usually integrate the direct market access platforms with various trading strategies. It enables them to bring about better efficiency in the trading process. 
  • It also saves up additional costs for the brokers. 
  • The greatest benefit of direct market access is that it allows brokerage firms to execute a trade at a much lesser price. 
  • Also, the orders executed get processed within no time, making it possible to benefit from short-lived trading opportunities.

Direct market access examples

As mentioned, various buy-side firms have direct market access. For example, you can invest in mutual funds through an investment bank or a hedge fund. These investment banks will probably access the trading exchange platforms’ order books. It will help them know whether the mutual funds you wish to invest in are available or not. They can even suggest better trading opportunities to help you fetch more money. It is an example of direct market access.

So, direct market access is access that leaves the trader with plenty of benefits. You can choose a brokerage firm with direct market access to top exchanges. 

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