Direct Access Stock Trading – an Overview

Online trading of stocks offered many more advantages than traditional stock trading such as faster trade execution, updated market information and sophisticated market research tools. But for some stock traders, like day traders, online trading were not so enough, which is why direct access stock trading has its existence. In direct access trading, DAT or EDAT, the trades are executed in real-time with real-time market information. The process is very simple and is fully automated with minimum/no human interfere.

The major benefit of direct access stock trading is that it does not require any broker assistance. The trades are executed by the trader himself, giving him the full control of his money; also full risk. Direct access stock trading usually involves much less commission fees than online trading, is also offer liquidity rebates and slippage control. But this style of trading is not recommended for long-term investors or position trades and part-time traders, as the traders have to satisfy account minimums and trading minimums; other wise will result in penalties and inactivity fees.

Direct access stock trading is carried out through specialized stand alone trading platforms, the direct access or level2 trading systems. These systems are installed on computers connected to high-speed communication networks. Today most direct access stock traders trade from their home. With the level2 or even level3 market access they can monitor real-time market data like ask and bid prices, market makers involved in trading, and order sizes. He can begin his purchase by just clicking on his choice of price and entering his order size. Direct access stock traders, unlike online traders, can route his order to his choice of market maker. The market maker then matches this order and transfers the stock. The results can be seen instantly.

As trades are executed in real-time, direct access stock traders can react quickly to any profit making situation and also can limit their loss when market goes down. Most direct access brokers offer much more leverage to day traders and thus the trader can increase his buying power considerably. There are a variety of direct access trading platforms available, and one broker offering more than one platform, of different levels, is common. These platforms may have a monthly usage fee, which is decreased by the increase in number of trades as well as increase in volume per trade done by the trader. Most direct access stock brokers offer paper trading accounts for a limited period to test drive their software.

Lastly, direct access stock trading is not recommended for novice traders as well as doubtful traders. As most trades are margin trades, you are always on the risk of losing your money. Remember it is a broker independent trading procedure – so there is little chance of getting advices.