Direct market access (DMA)

DEFINITION of direct market access (DMA)

Direct market access is a term from financial markets. It describes electronic trading facilities that give investors a way to interact with the order book of an exchange.

WHAT IT IS IN ESSENCE

Normally, only broker-dealers and market making firms that are members of the exchange, have direct access to the order book.

Investment companies, or buy-side firms, and private traders use the information technology infrastructure of sell-side firms. That firms can be investment banks, for example. Traders use their technology to access the market. In that way, they have direct market access.

But such traders have full control over the trading transaction. They don’t pass the order over to the broker’s own in-house traders for execution.

DMA is often combined with algorithmic trading giving access to many different trading strategies.

Certain forms of Direct market access,  have raised substantial regulatory concerns. It comes because of the possibility of a malfunction by an investor to cause widespread market disruption. Most notably “sponsored access” gives such opportunity.

In other words, in trading, DMA provides direct market access.

It’s a way of placing trades with more flexibility and transparency than traditional dealing  It is usually referred to as OTC, or over-the-counter.

It’s convenient for advanced traders.

HOW TO USE

With DMA, investors place trades directly on the order books of equity exchanges. DMA traders have the possibility to see the orders directly on the books of the exchange. And are charging on a commission basis instead of via the spread.

DMA can be a good way for advanced traders. It provides them to get a more comprehensive view of the market.  Also to see the best potential prices available.

Risks and complexities are involved. It is often referred to as Level 2 (L2) trading.

Traditionally, trading directly with the order book was only available to broker-dealers and market makers. But DMA enables private firms and investors to directly interact with the order book.

This service is also available by some online retail brokers.