Broker Execution Types DMA

As you may know, there are a few different types of brokers in the retail foreign exchange market including Market Maker, ECN, STP and etc. The criteria we talked about here is the order execution type, basically, how a order will be executed after you placed one through your Electronic Trading Platform, Telephone or other methods. Each execution type has its own advantages as well as disadvantages comparing with other types. In this article, we are only focusing on DMA brokers. Please check other articles if you would like to know the feature of other type brokers.

The DMA stands for Direct Market Access. It is a simple one and is yet another example of an invention that started out in the equities market and is now being adopted in the Forex Market. The DMA system has the following advantages; firstly it offered the quickest route to market with little latency being a sole connection between buy-side firm and execution venue. Secondly, it offered lower transaction costs because of the absence of a broker. Thirdly, it gives buy-side firms greater control over their own trading, which has become more and more important as shown by the various regulatory initiatives such as commission unbundling and the markets in Financial Instruments Directive (MiFID). The advantage also can be summarized as following key points:

  • Equal playing field

  • Visibility / transparency

  • Depth of order book

  • Set your own price

  • Tighter spreads

  • Auction participation

DMA broker provide traders quick access to the interbank market, and DMA brokers normally have a connection with an investment bank which they move your orders to instantly. The DMA brokers do not take on client positions and take advantage of client loss like Market Makers but rather move them on directly to an investment bank. The normally charge a small portion of commission. Some research commented that, due to many FX bank pull back their best price from ECNs, the trader through ECN may have partial fills, slippage and rejections.

One of the major issues with DMA in the equities market is its state of independence. One of the early heralded benefits of DMA was the fact that it offered a means to execution through an agency broker that bypassed the principal brokers. However when investment banks then offered their own DMA services or else bought out the independent providers, the waters were muddied somewhat as to what constitutes a true DMA service. There are also banks now claiming that they are DMA providers, pretending to be agency brokers and offering to execute your orders. In an OTC market like FX, where there is no exchange, the banks are ultimately the primary sources of liquidity. It is not that the buy-side wants to avoid using the banks but they want to be able to access them all on an equal footing. Banks want their customers exclusively so they are offering DMA in the hope that some buy-side firms will just be looking to tick a box to say that they have a DMA tool without really knowing what a true DMA offering should be.

Please find out all the Market Marker ECN brokers by clicking Here

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The Response to above acticle

2012-04-21 18:28:14
Review by:
Hi Kevin,Great question!With pisplage, this refers to getting into the market at a different price than you expect to, because of fast market movement.For example, if you intend to buy a CFD at a price of $5.70 but because of rapid rises in the market, you get in at $5.80, this means that your pisplage is 10c.Thus, this can\\\'t be backtested, as your entry price depends on the liquidity in the market at the time, and whether your order is placed before someone elses. If you trade very liquid stocks (high turnover stocks), then pisplage is not as common as if you trade illiquid stocks (low turnover stocks).Hope this helps!Kurt

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