Most entry level traders would hire online brokers to handle their day trading tasks. Online brokers is relatively cheaper and within anyone’s reach Anyone with an internet connection and a credit card can acquire one. The major disadvantage of online brokerage is the fact that it promotes slow order execution Speed is of the essence in trading. A trader should have a system that can order and place trades on the dot if he or she wants to succeed. Upon recognizing this fact, an experience trader would usually turn to direct access trading systems instead of ordering through online brokers. Direct access trading can make things a lot easier when you are getting into the stock market for beginners.
Immediate execution of orders is the key factor for day trading success. Direct access trading eliminates the need for a middleman, which in this case is the online broker. The absence of this middleman can save time—from several seconds to several minutes. This is because direct access trading, as the term implies, allow traders to order directly from a client or a market maker who is actually working on the floor of the stock exchange. Traders can save time since the orders are no longer executed by online brokers. One you’ve mastered the stock market basics things get easier quickly, then you can move onto things like beginners forex trading.
Another reason why you should opt for direct access trading system is the fact that online brokers may also be clients of market makers. The tendency is that when executing orders, online brokers would not choose market makers that offer the best price. Instead, they would trade with their clients to earn commission. This acceptable practice in financial trading wherein brokers get commissions from executing orders to their market maker clients is known as “payment for order flow.” With direct access trading, the trader can choose the market maker that provides the best price.
Another reason why direct access trading seems to be costlier is the fact that online brokers receive commission from payment for order flow. Because they earn more from market makers, they can now afford to offer cheaper rates to traders. On the other hand, commissions from direct access traders are scaled depending on the number of trades a trader execute for a specific time period. Commission rates for each trade may fall within $15 to $35. In addition, most direct access trading system providers would charge for the use of their software. This additional payment falls within $250 to $300 per month. Some firms waive the software fees if the trader makes a certain number of trades, most of the time falling within 50 to 300 per month.
Direct access trading systems available in the market vary based on commission rates, accuracy and speed of order execution. A trader must carefully choose the trading system that suits their needs in terms of price, performance and speed.