Electronic Trading / Direct Access Trading

The Internet and the rise of electronic trading has given individual investors an unprecedented opportunity to buy and sell stocks and options directly on stock exchanges without the assistance of brokerage firms or other middle men.

Direct access trading puts you in direct contact with the electronic trading system used at the stock exchange. For example, most stocks traded on American exchanges can be accessed through independent Electronic Communications Network, allowing corporations to sell their shares to people outside of the exchange. Direct access trading systems are basically just computer programs that are plugged into the Electronic Communications Network or other system used by the stock exchange or alternative market in question. Using this amazing technology, you will buy and sell stocks directly, without having to pass your buy and purchase orders through a stock broker. And because you are cutting out the brokerage middle man, it also means that you trades are executed almost instantaneously – in a matter of milliseconds. For some active traders, the requirement to have their transactions executed in real time is of the highest importance. Another advantage of using direct access trading systems is that you can control the order routing and payment for order flow. While this option should only be used by investors who really know what they are doing, what it means is that the investor can direct a specific market maker or specialist on the trading floor to make the purchase or sell the stock.

Stock brokers usually charge a percentage fee on every transaction, although they sometimes also charge a flat free. This payment method is not usually used in direct trading services. Instead, the investor will pay a monthly access or platform fee to use the service. The investor will then have two types of fees on every transaction. The direct trading service will have a per transaction fee, which will usually decrease as the level of trading increases, and the direct trading service will also usually pass on any exchange fees onto the investor, such as a special fee for using the Electronic Communications Network or for using a market specialist. Most direct access brokerages also have an inactive fee if you do not make enough trades in a day. For this reason, it should be emphasized that direct access trading is primarily for extremely active traders such as day traders. Day traders make their money by large numbers of same day or other short term transactions, and would normally loose their profits on traditional brokerage fees, and be limited by the time delay between their order and the transaction. If you are a long term investor, content to buy your stocks and watch them grow, there is no need to use a direct access brokerage system. A direct access system is also not suggested for new traders. As indicated above, direct trading is a highly complicated method of investment that is great for experienced active traders, but would be a complex process for anyone even only moderately experienced.