Direct Access Markets Compared To Online Trading Companies

May 3rd, 2009

Novice traders would usually hire online brokers to execute day trading for them Online brokers, after all, are accessible and less expensive. Anyone with an internet connection and a credit card can acquire one. The major disadvantage of online brokerage is the fact that it promotes slow order execution Speed is important in trading. To ensure success, traders should utilize a system that orders and places trades on time. Upon recognizing this fact, an experience trader would usually turn to direct access trading systems instead of ordering through online brokers. Direct access trading can make things a lot easier when you are getting into the stock market for beginners.

For professional day traders, success depends a lot on speed of execution. Direct access trading eliminates the need for a middleman, which in this case is the online broker. Once the middleman is out of the picture, traders can save up to several minutes of their precious time. Direct access trading allows traders to execute orders directly with the market makers working on the floor. Traders can save time since the orders are no longer executed by online brokers. One you’ve mastered the stock market basics things get easier quickly, then you can move onto things like beginners forex trading.

Another reason why you should opt for direct access trading system is the fact that online brokers may also be clients of market makers. This means that online brokers do not choose their market makers in terms of the price that they offer when executing orders. They would rather route the trades to their clients to earn rebates. This acceptable practice in financial trading wherein brokers get commissions from executing orders to their market maker clients is known as “payment for order flow.” On the other hand, direct access trading ensures that trades are executed with the market maker that offers the best price.

Direct access trading is relatively more expensive to online brokers due to the probability that online brokers are receiving payment for order flow from the market maker which ensures hefty commission rates. Consequently, they can afford to offer rock-bottom rates to traders. Commissions obtain from direct access trading are based on the number of traders executed by a trader within a certain period. Commission rates for each trade may fall within $15 to $35. There will also be additional monthly charges for the software, ranging from $250 to $300. Some firms waive the software fees if the trader makes a certain number of trades, most of the time falling within 50 to 300 per month.

Direct access trading systems available in the market vary based on commission rates, accuracy and speed of order execution. Professional traders have to be vigilant in choosing the perfect trading system based on these key factors.