When a direct access broker is used to place an order, the order is sent DIRECTLY to the market. This typically leads to faster executions than you can achieve with an online or full-service stock broker.With a direct access trading platform, once the order is submitted, it goes directly to the market. If there are shares available at the specified price, the order is executed in a fraction of a second and the confirmation is displayed instantly in a pop-up window, without any interaction required from the trader. Everything is done automatically, allowing the trader to spend his time watching the market and trying to make money.With direct access, a trader also chooses the ECN (Electronic Communication Network) or market maker that he/she wants to send the order to. Since all the available prices for each ECN and market maker actively trading the stock are seen, the order can be sent to where the trader thinks he is most likely to get the best fill. This could result in frequent price improvements relative to online executions.
The gain of having different places to send the order for stocks goes beyond mere price improvement. In an emergency situation where everyone wants to buy or sell a stock at the same time, a trader with direct access will be able to get out of a stock easier than the typical online trader could.This is due to the fact that, since the online trader cannot dictate where the order is sent, it will probably get sent to the traditional route that most online brokers are using at the time, leaving the trader stuck behind a long line of orders that arrived before and with high probability of getting a horrible price.Alternatively, a trader with a direct access system will be able to use a non-traditional route to auction a stock and avoid slippage. Likewise, the might be able to buy a stock a lot easier than the online trader if everyone is trying to buy the stock at the same time before the run up in price is closed.
FEES AND COMMISSIONS OF A DIRECT ACCESS BROKER
Most direct access brokers usually charge commissions based on a scale. The more transactions a stock trader makes, the lower the commission per transaction. The trader must also make the payment charged by the individual ECNs. These fees are added to the regular commissions. These commissions tend to be the same as those of the typical online brokers, there is added benefit when a reliable direct access broker is used. The overall quality of your executions will be much greater.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.