Cut-Through Intermediaries: Direct Market Access In Forex Trading And Its Benefits

The forex trading market place is known for being extremely volatile, uncertain, and fast-paced. With an average trade clocking at a time of milliseconds, the competitive edge can only be retained by traders, both beginners and veterans alike, if they can constantly reinvent the efficiency wheel. In the cut-throat forex world of today, traders must embrace the digital arena with leverage that allows them to be dynamic and effective.

Staying competitive in a market swarmed by traders that work on the principle of outcompeting their peers, requires participants to flesh out any undue trade-related delays. The traditional trading route works like this- traders enter the forex market, execute a trade that is routed through brokerage servers to market exchange servers, and then filed. The existence of intermediaries within the transaction of trade gives rise to a swathe of inefficiencies, that can potentially be disruptive for a successful forex trading career.

Given this context, an effective way to optimize order routing is by utilizing a service known as Direct Market Access (DMA) in forex trading. Before we delve into the potential offered by this technique, let’s establish some rudimentary science behind DMA.

What Is Direct Market Access in FX?

As the phrase suggests, Direct Market Access fleshes out all liabilities in the trading process in terms of intermediaries. In this type of FX execution, traders get access to physical markets without getting routed through intermediaries. Traditionally, forex trading is conducted with the help of brokers, that get quotes from market trends and stakeholders, and then offer the best bargain to their clients.

But, if a trader pairs up with FX brokers with DMA type of order execution, then they get the opportunity to evaluate different market trends, prices, and orders themselves and then implement their trade accordingly. Initially, the DMA trading stream was only offered to high-profile clients, and ordinary traders had to go through a dealing desk known as the ‘market maker’. Now, an increasing number of brokerage services offer DMA to clients, so they can trade directly with large-banks and liquidity providers.

How Does It Work?

The emergence of a comprehensively digital online infrastructure, that is fueled by ultra-high-speed internet has made DMA systems increasingly accessible for personal entities and day-to-day traders.

Direct Market Access makes use of this sophisticated digital infrastructure to avoid trade-related latencies. DMA networks are in most cases owned by sell-side firms, which deal upfront with financial institutions such as banks that are constantly executing trades on the interbank market. With the help of the volume offered by these gigantic banks, this type of network trading has the potential to offer liquidity.

Without the DMA model, brokers define the market for their clients- they provide both the buy and sell quote. This structure of operation not only divides the profit between a trader and the intermediary but also is inefficient due to the natural increment of time. DMA brokers, however, operate without a dealing desk, where transactions are made immediately.

The Benefits Of Direct Market Access

DMA is increasingly becoming the prime-choice of seasoned and beginner traders because of the transparency it offers in the trading process. The most essential benefit that it offers is a vital delay-reduction, as when any trade intermediaries are fleshed out, the time of executing a trade automatically falls. This not only increases the efficiency of trading but also allows a faster order placement and trade execution.

This type of trading also offers a high degree of anonymity, which is desirable in the realm of FX. As orders do not pass through market makers, the broker affiliation is eliminated, providing a trader with an enhanced magnitude of transparency.

The improvements in prices are also substantial. Traditionally, trade desks quote the buy and sell price to traders, but with DMA, they have the option to submit offers before ever accepting a quote. In short, they have the potential to transform into market makers!

With all its benefits, Direct Market Access FX trading sounds very lucrative, but it requires a complex infrastructure to facilitate high-speed trade processing and operations. Enhancing the efficiency of any process is always a desirable goal, and in the realm of trading, DMA provides a sound opportunity.

Carolyn Coley is a blockchain reporter. She joined Smartereum after graduating from UC Berkeley in 2018.


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