What is Direct Market Access?

Direct market access, or DMA, in the world of financial marketing refers to various types of electronic trading tools that make it possible for investors to quickly and securely place orders with an exchange. This type of trading tool can be used with stocks, mutual funds, and a number of other investment types. While the ability to trade on an order book is normally limited to brokers and dealers, the use of direct market access by private traders or investment companies makes it possible to bypass brokers and conduct the trade directly with the exchange. This can be especially important when executing an order quickly is crucial to generating the best possible return from the transaction.

The direct market access approach is commonly employed today by investment companies that are known as buy side firms. Often, businesses of this type operate with a business model that allows them to buy and sell for individual clients or to execute orders in bulk for a number of clients at one time. Depending on local commerce laws that may apply, firms of this type sometimes charge lower fees, which means that clients incur less expenses while retaining the ability to execute orders quickly and easily.

Individual investors also make use of direct market access. Typically, the investor must meet the criteria established for an exchange in order to place orders directly. Once the investor is authorized to do so, it is possible to use this method to place orders at any time during the trading day, with almost no delay at all. The benefit of this approach is that the investor can quickly buy securities as they increase in value and just as quickly sell those securities as they begin to level off, but before a decline in price begins to materialize. While brokerages also tend to move quickly with placing customer orders, the few extra seconds or minutes that are provided with the use of direct market access can make a difference in earning a little more return, or possibly preventing a loss from taking place.

Another benefit to direct market access is that the investor does not have to share information with anyone other than the exchange when executing an order. This means that there is no opportunity for information to leak to other sources at any point during the transaction. Some of the interfaces for direct market access even shield the identity of the end user with the use of some type of code or username that is recognized by the exchange, but has no real meaning to any third party, including trading desks with other exchanges. This feature is often ideal for investors who prefer to invest without drawing a lot of attention to themselves.