What is DMA in trading?

DMA stands for direct market access. DMA trading enables traders to place buy and sell trades directly on the order books of an exchange or a liquidity provider. Over–the-counter (OTC) dealing refers to trades that are not carried out through centralised exchanges. In an over-the-counter market, parties quote prices for financial products through a network of dealers or intermediaries. Electronic communication networks (ECNs) and aggregators provide foreign exchange quotes from various banks to bring together buyers and sellers.

Please note that CMC Markets doesn't offer direct market access; instead, we offer derivative trading products such as spread bets and contracts for difference (CFDs). If you're looking to reduce trading costs, view our Price+ page for information on how this can be done.

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Direct market access vs market maker
How to get direct market access
What's an alternative method of trading?
Direct market access vs algorithmic trading
What are the advantages of DMA trading?

Direct market access vs market maker

Equities, commodities, futures, foreign exchange and other tradable securities within the financial markets are bought and sold on an exchange, which is often referred to as an organised market. Liquidity providers are entities that hold a large quantity of a financial product. They provide financing for the security and then facilitate its trading in the direct market. Since they ‘make the market’ for the security, they are therefore often referred to as market markers.

Today, traders can trade securities by placing orders directly on the order books of stock exchanges and electronic communication network brokers (ECNs) through direct market access (DMA trading). DMA empowers traders to become market makers rather than price takers.

How to get direct market access

The direct market comprises of buy side and sell side entities.

Sell side entities engage in the sale of financial instruments. These could include liquidity providers and market makers.

Buy side entities engage in the buying of financial instruments. These could include asset management companies and private investors.

In the foreign exchange market, orders are usually placed on the order books of ECNs.

In the share market, orders for DMA share trading are usually placed in the central limit order book of an exchange.

ECNs and exchanges bring together buy and sell side entities. Their order books comprise of the ask prices of financial products on offer by sell side participants, and the bid prices for the same by buy side participants.

What's an alternative method of trading?

Contracts for difference (CFDs) are derivative trades between a CFD provider and a client. A CFD does not give ownership of the underlying financial instrument to the client, but is rather an agreement between both parties to settle in cash the difference between the opening and closing prices of the contract. The broker will base the price of a CFD on the price of the underlying financial instrument in the direct market. CFDs are not traded on exchanges in the organised market and are classified as over-the-counter trades.

These are traditionally quote driven products. Providers may hedge their market exposure in this manner, and therefore, a quote-driven CFD provider is a market maker. When a client trades a contract for difference, the provider instantaneously places a corresponding order in the direct market, mirroring the price, volume and instructions of the CFD. This order appears as an individual entry on the order books of the ECN or exchange.

What are CFDs?

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Direct market access vs algorithmic trading

DMA trading platforms can often be used with algorithmic trading strategies, as they are useful for both and sell traders. Algorithmic trading helps to quicken the trading process and achieve best execution for each position. This can also help the trader to save money as automated trading systems are generally more efficient and present less risks. The meaning of direct market access with algorithmic trading also helps to take advantage of order execution and fast transactions that traders may not have time to spot themselves.

What are the advantages of DMA trading?

DMA may benefit investors with substantial trades as many direct market access brokers require a minimum account size for DMA trading access.
Every financial transaction has associated costs, and DMA trading entails lower costs. Direct market access is technology-driven, which eliminates manual intervention, and the broker acts as an agent, using technology that lowers the associated trading costs.
DMA trading systems provide both participants in the market with access to extended pricing data, as traders are often able to view data from several global exchanges and ECNs.
Opening and closing auctions on exchanges are an important feature of stock trading. Liquidity becomes elevated during auctions and DMA allows traders to participate in these auctions.
DMA can benefit traders in both the foreign exchange market as well as in the stock market.

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FAQs

What are the costs of direct market access?

DMA trading usually involves lower costs than regular financial transactions. This is because direct market access is automated and doesn’t have a market maker, meaning that it can use technology to lower associated trading costs.

What is the DMA execution?

DMA platforms are known for their speedy order execution, using quick algorithmic strategies to carry out regular and block trades. They’re equipped to place large volumes of trades with just one order.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.