Direct Access Trading (DAT)

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Direct Access Trading (DAT)

What Does Direct Access Trading Mean?

Direct access trading (DAT) is a technological system that allows stock traders to trade directly with another customer, a market maker on Nasdaq, or a specialist on an exchange’s floor, all without the involvement of a broker.

Understanding Direct Access Trading (DAT)

Direct access trading (DAT) is the favored trading strategy for day traders, whose performance is determined by the rapidity with which prices move in seconds. DAT is not required for the ordinary investor who owns stock for years or even decades. There are several DAT systems available to traders, and they differ in terms of speed, accuracy, and the commission fee imposed for each transaction. The majority of direct access businesses charge charges depending on trading volume and per share. Retail brokerage businesses, on the other hand, charge based on the number of transactions.

The Nasdaq was the first to accept DAT, but many others have since followed suit. Prior to the advent of DAT systems, traders had to issue orders to purchase or sell stock via a typical brokerage business, which might result in transaction execution delays and the inability to get the best market price available. Because DAT does not need a middleman, transactions are completed in milliseconds and confirmations are shown on traders’ computer screens instantaneously.

The Benefits and Features of DAT

Access to a trading software program known as a Level 2 screen is one of the most important characteristics of DAT. This tool allows traders to see a comprehensive list of bid and ask prices as well as order sizes, providing the trader with much more important information and a bigger possibility for profit. After a trader selects a price at which to place the order, the transaction is initiated with a single click, and the trader must then input the quantity of shares for the order. Some direct access systems enable a trader to choose a preset number that will be input automatically, enabling a trader to order 1,000 shares without having to enter four more keystrokes each time, which may save time and be more convenient.

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DATs also allow traders to trade on electronic communications networks (ECNs), which are totally electronic stock exchanges where orders are executed straight from the trader’s DAT and communicated to the ECN in a fraction of a second. Most DAT systems let traders to route their orders to any market maker, specialist, or ECN, although online retailbrokerage businesses often deal with their own in-house experts.

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