Direct Market Access Agreement

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Even in a liquid market, there are periods when the spread can grow and anyone with access to DMA has the opportunity to use it. With a stock listed at 200-210, a DMA trader could make an offer at 202 and an offer at 208, both on the yellow side. If each of these orders is executed, the result would be a risk-free profit of 6p on the spread, while if only one part had passed, it would still represent an improvement in the market price. The immediate execution of the order, available with DMA, also makes it possible to act on the current news, because those who observe the screen and react quite quickly have a good chance of fulfilling their orders before the market has completely digested the new information. The logical conclusion that allows investors to process their own orders directly on the order book without resorting to Market Maker was initially facilitated by electronic communications networks such as Instinet. Investment banks have recognized the threat to their own businesses and have begun to acquire these businesses (e.g. B the purchase of Instinet by Nomura Holdings in 2007[2] and to develop their own DMA technologies. Most major Sell Side brokers now offer their clients DMA services in addition to their traditional “processed” orders and algorithmic trading solutions, which offer access to many different trading strategies. Some brokers offer incentives to encourage new clients, such as.B. free or heavily discounted commission rates in the first month. For active traders, the most valuable concessions are the frequent sales discounts that many companies offer to carry this type of customers in their books.

The definition of what constitutes a reseller varies between brokers, but in most cases, at least ten times a quarter, trading gives the investor a few pounds of the normal commission. This can be in addition to a substantial saving over a year. The biggest cost of trading, especially for trading smaller stocks, is usually the Bidoffer spread, which is usually the most difficult to quantify. Many online stock trading platforms actually contain technologies to minimize the spread by trying to beat the best price (yellow bands) on the London Stock Exchange. This works in such a way that stockbrokers act as intermediaries between investors and market makers, also known as retail service providers or RSPs. At any given time, different RSP can and will offer different prices for the same shares. The technology scans multiple RSPs to automatically find the best price available at that time. This summer, for example, the average savings per trade was around £7 or £8 for high-level brokers. Another advantage of DMA is that it is the only way for private traders to enter orders directly during the opening and closing auctions on the London Stock Exchange. There are currently more than 650 UK stocks that start each trading day with a pre-market auction between 7.50am and 8am and end with an auction from 4.30pm to 4.35pm.

From a commercial point of view, the auction is very often the period when a stock records its peak or low of the day, and it is only by actively participating that the best prices and therefore the most important movements will be available. CFD providers with direct market access typically calculate a total commission rate of around 20 or 25 basis points, although active traders can normally trade on more favorable terms. The technology and infrastructure needed to develop a trading platform with direct market access can be expensive to create and maintain. Companies that offer direct market access sometimes combine this service with access to advanced trading strategies such as algorithmic trading. Thus, there are agreements between the owners of platforms with direct access to the market and sponsored companies that describe the services offered and the provisions of the agreement.. . . .

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