Direct Access Trading – DAT Systems Definition

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Direct Access Trading – DAT Systems Definition

Online brokers are now the most accessible and often the least priced trading technique available. After all, anybody with a credit card and an internet connection may access them. The issue with normal, run-of-the-mill internet brokers is that they have excruciatingly delayed order execution. Indeed, rookie traders who are serious about their career will quickly realize that speed may be a critical aspect in generating a profit. The mechanism for placing orders and executing trades is a crucial tool for traders. Direct access trading (DAT) systems are among the most user-friendly and lucrative for traders.

This article will provide an overview of DATs.

What are Direct Access Trading – DAT Systems?

Direct access trading systems enable traders to trade stocks (or nearly any other financial asset) directly with a market maker or expert on the exchange floor, or to execute orders immediately. The approach eliminates the need for a middleman, which is common in internet brokerages. The absence of a middleman may save a trader anything from a few seconds to several minutes.

Individual traders must compete in trading, whether they are beginners or experts hired by huge financial firms. Professional traders will always get access to the most up-to-date tools and training, as well as the quickest buy and sell orders. As a result, in order to compete, individual traders need have the finest system available. Anything less might place them at a competitive disadvantage when it comes to purchasing and selling orders.

However, not all order execution systems are the same. Even with all of the current direct access trading platforms, there is a variety in execution speed and accuracy, as well as charges imposed for each transaction. As a result, traders must use caution when selecting a strategy that suits their requirements.

Let’s take a closer look at how certain DAT characteristics could match a trader’s unique style and demands. It should be noted that this debate is limited to stocks. Other financial products are exchanged in a similar manner, although they may need minor adjustments to fit under the following broad principles.

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Level II Quotes

Because DATs eliminate the middleman, traders can connect directly to the markets if they have an internet connection and a computer. This provides the trader with additional knowledge and increases his or her chances of success. This is due to something known as a Level II format.

A Level II screen provides the trader with a comprehensive list of bid and ask prices, as well as order sizes, for each stock in issue. The trader will select the price for the order before beginning the trade—usually with only one click. The only thing left for the trader to do is pick how many shares to include in the order.

A pop-up window is opened and the order size is entered. Some systems allow a default amount to be automatically pasted, allowing the trader to order, example, 1,000 shares without having to enter the additional four keystrokes. Many traders will have a “typical” order size, and using the preset figure may be a huge time saving.

Electronic Communication Networks – ECNs

Trading over electronic communication networks is also possible with direct access trading systems (ECNs).To put it simply, an ECN is a purely electronic stock market in which buyers and sellers are matched by computer without the need for a human intermediary. Orders are performed directly from the trader’s DAT and electronically relayed to the ECN very instantly, often in a fraction of a second.

Market Makers

Even if the order is not routed via an ECN, the trader has direct access to market maker orders through the direct access mechanism. Many of the floating orders are made by market makers, either from their own trading accounts or on behalf of their customers, who are often huge financial organizations. Surprisingly, internet brokers may also be market makers’ customers. These market makers may pay internet brokers a fee to route their transactions, a practice known as “payment for order flow.”

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Another significant benefit of employing a DAT versus an online broker. The trader has no control over where the order is routed when using an online broker. Using a DAT, the trader may choose the market maker with the best pricing.

Fees and Commission

Some traders may be startled to realize that their DAT costs more than utilizing an online broker. The increased cost of DATs stems from the likelihood that any online broker will be paid for order flow from the market maker, allowing online brokers to maintain their commissions at rock-bottom levels.

Direct access trade commissions, on the other hand, are charged on a sliding scale depending on the amount of deals executed by a trader over a specific time period. Commissions on trades generally run from $15 to $25, with an extra cost assessed by the ECN. Total fees for each transaction might potentially range from $15 to $35. Finally, most DATs would demand a monthly fee for the usage of their software, which typically ranges between $250 and $300. This fee is sometimes removed if a trader performs a certain amount of deals each month, typically between 50 and 300. Obviously, the trader’s choice of certain DATs should be based on an overall cost evaluation, which must include personal levels of activity in this decision.

Pros and Cons of DATs

Direct access trading systems may provide various advantages to active traders. Here are a few examples:

  • Trading happens quickly, therefore there is no lag time. A deal may normally be completed in a matter of milliseconds.
  • DAT transaction costs are comparable to those charged by retail brokers. While these prices are normally per share at DAT, other brokers’ fees may be greater since they are frequently charged per transaction.
  • Other brokers charge a commission fee each transaction because they sell order flows. DATs, on the other hand, do not sell order flows and instead get rebates that they pass on to their consumers.
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However, like with everything, there are certain drawbacks to adopting these systems:

  • Expertise is required: Novice traders may find it challenging to navigate and wade through the systems at first. Making trading judgments and routing orders takes a certain level of competence and understanding, which might be expensive at first.
  • Volume fees: Some systems impose a monthly trading volume requirement. If it is not satisfied, the trader may be charged a fee. Before joining up, traders should ensure that they can satisfy the minimum trading criteria, if any.

Popular DATs Platforms

Many internet brokers provide direct access trading platforms to their customers. Investors should do their own research to ensure that the system they choose fulfills their specific requirements.

Here is a list of some DATs available to traders:

The Bottom Line

There are several DATS and ECNs available. While many of these techniques are already well established among traders, the business is still in flux. In tomorrow’s trading environment, today’s systems may become “also-rans.” So, while selecting your systems, keep your alternatives open and never become too attached to a certain firm or software application.

As a trader, the best course of action is to have a backup plan in place in case your existing manner of doing business unexpectedly changes due to, instance, system failure or the bankruptcy of your system supplier. The wise trader is completely prepared for any eventuality and is ready to pivot on a dime if their company model suddenly changes.

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