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What is Direct Access Trading?

By Charity Delich
Updated: May 16, 2024

Direct access trading is a technology system that provides traders with the ability to trade directly with clients, market makers or exchange floor specialists. Using a direct access trading platform, a trader can also conduct transactions on electronic communication networks, which are networks that use computers to match buyers with sellers. Often abbreviated as “DAT,” direct access trading allows trades to be made without using brokers.

Most financial instruments can be traded using direct access trading software. Direct access stock trading is one of the most common types of traded instruments. When conducting these types of trades, traders typically use DAT software in order to buy and sell in major stock exchanges such as the NASDAQ or NYSE. Before choosing a direct access trading platform, traders should thoroughly evaluate the platform. Some platforms may not be as fast as others, and system performance can vary.

One key advantage of direct access online trading is speed. While conventional online trades usually take seconds or minutes to complete, direct access online trading typically allows a trader to complete a transaction in less than a second. DAT can also help reduce slippage, which is the difference between the asking price and the price at which an order is actually filled.

The ability to control which specific market makers or specialists receive an order is another benefit of DAT. In addition, DAT is often less expensive than trading through traditional brokerages. Traditional brokers usually charge on a per transaction basis while many direct access firms charge on a per share basis. Some direct access firms base pricing on trading volume, allowing clients that trade in higher volumes to realize price breaks.

Direct access trading is commonly used by traders who are seeking to execute transactions quickly while keeping costs and slippage at a minimum. Scalpers, event-based traders, day traders, and swing traders are examples of traders who frequently engage in direct access trading. Given the complexities associated with direct access trades, inexperienced traders typically are not knowledgeable enough to use DAT systems.

Before selecting a direct access firm, investors should inquire about the firm’s exchange fee policies. Most direct access firms pass any exchange fees associated with a transaction on to their clients. Fees can include regulatory fees, clearing fees, modification and cancelation fees, or specialist fees. Some firms may also charge monthly fees for using their proprietary direct access trading platforms and software. Firms that have minimum trading volume requirements may assess inactivity fees if those requirements are unmet.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
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