Direct Market Access (DMA)

The contemporary marketplace is a high-speed environment where the time it takes to execute a trade is measured in milliseconds. In order to remain competitive in the futures, forex and cryptocurrency markets of today, one must be able to engage these digital arenas with maximum efficiency.

Advancements in information systems technology and internet connectivity have made near-light-speed trading a reality. While attempting to consistently receive the best executions possible, market participants go to great lengths to reduce any undue trade-related latencies.

As an example, studies dated 2013 estimated that upwards of £1.14 billion was invested in the development and implementation of low-latency technologies.[1] A popular method of minimising latency and optimising trade execution is through securing direct market access (DMA).

Direct Market Access (DMA) Defined

In traditional forms of trade, such as open outcry or broker-assisted, market access depended greatly upon personal relationships and broker competency. In the modern digital marketplace, being technologically sound is of paramount importance.

Order routing is the process by which orders flow from the trader to the market/exchange. Typically, order routing in electronic markets consists of the following steps:

  1. The trader enters an order remotely using a software trading platform
  2. The order travels to dedicated brokerage servers via internet connectivity
  3. Brokerage servers relay the order to market/exchange servers
  4. The order is received, placed and potentially filled at the market/exchange

One way to optimise order routing is through utilising the functionality of direct market access (DMA). DMA is an absolute connection between the trader and order book of a market/exchange. It eliminates all intermediaries and connects traders, both retail and institutional, to other liquidity providers at the market/exchange.

Under DMA, the order routing process is streamlined significantly:

  1. The trader enters an order remotely via software trading platform
  2. The order travels to market/exchange servers via internet connectivity
  3. The order is received, placed and potentially filled at the market/exchange

Another facet of DMA that is advantageous to traders is access to the exchange/market's order book. The order book is a list of all existing buy/sell orders organised according to price level. Strategies or algorithms based upon market depth analysis and order flow find this type of information particularly useful.

Not including the hidden block-orders of dark pools, DMA allows the trader to view where all resting orders lay. Depth-of-market information is vital to those attempting to decide how best to engage a market/exchange given current and future liquidity levels.

Benefits Of DMA

For many sell-side and institutional traders, DMA is the preferred mode of market access.

As an example, high frequency trading (HFT) firms rely on DMA to expedite day-to-day operations. HFT enterprises generate huge volumes, accounting for 40% of European equities and 80% of currency futures daily handle.[2] Given the high levels of HFT activity, trade execution via DMA is a staple in the global marketplace.

However, the technological infrastructure needed to facilitate trading operations using DMA requires extensive resources to develop and maintain. Until around 2007, a majority of market participants have been unable to take advantage of the many benefits DMA has to offer.

As of July 2018, the following advantages are enjoyed by a vast number of individual retail traders around the globe:

  • Latency Reduction: Eliminating any intermediaries within the trader/market connection inherently reduces trade-related latency. As a result, order placement may be completed more rapidly, enhancing trade execution.
  • Minimal Slippage: In volatile markets, the cost of slippage can be substantial. Orders are often filled at undesirable prices, negatively impacting profitability. DMA eliminates slippage in two ways.
  • First, reduced latency in order entry promotes superior trade execution.
  • Second, the order book data can be useful in identifying areas of optimal liquidity for market entry/exit, thus further reducing slippage.

  • Anonymity: DMA matches the orders of traders to liquidity providers without first passing through brokerage servers. Subsequently, orders hit the market/exchange without any broker affiliation, providing the trader with a higher degree of anonymity.

  • Price Improvements: In a traditional market setting, traders are quoted the best available price in which to buy or sell a financial instrument. Under a DMA framework, participants are able to act as market makers, with the option of submitting offers before ever accepting a quote.

If a strategy is implemented based on executing a high-volume of trades, then securing DMA can be critical to preserving long-term profitability. The reduced cost of slippage, as well as access to order book information, furnish previously unavailable advantages to retail market participants.

In forex trading, DMA is a primary ingredient in No-Dealing Desk (NDD) execution models. Under NDD, currency traders are linked directly with liquidity providers at market. The upside to this framework is multifold, with superior trade execution heading the list.

Drawbacks To DMA

While it is difficult to argue with the advantages of conducting trade via DMA, it is also important to take a moment and address a few drawbacks. Price improvements, reduced slippage and trader anonymity are tremendous upsides. However, there are circumstances where an active trader is well advised to be aware of several potentially costly pitfalls.

Listed below are a few challenges faced by practitioners of DMA trading:

  • Data Lag: Obscure data lag and network congestion can destroy the integrity of a DMA connection without the trader being aware. This factor is capable of negatively influencing the performance of strategies built for the low-latency DMA provides. Regular system maintenance and calibration is necessary to ensure optimal efficiency.
  • Platform Compatibility: Transferring data to and from the exchange/market without an intermediary may encompass multiple programming languages. The use of designated platforms or an API may be required to facilitate the connection.
  • Account Size: Depending upon the market, brokerage service and products being traded, securing DMA can require a large account size. Guidelines will continue to evolve in-step with technology and customer demand, but capital allocations can be extensive.
  • Trader Complacency: Given the advantages DMA affords the user, trade execution may deviate from the direction of a comprehensive plan. As a result, performance may suffer due to lacking discipline and haphazard trading.

At the end of the day, it is up to each participant to decide whether or not pursuing an operational structure based on DMA is worth the time and effort. In many cases, the benefits of may not improve performance to the point of dedicating additional time or capital resources.


On a daily basis, tens of millions of buy/sell orders are placed on global over-the-counter (OTC) markets and standardised exchanges. The ultimate objective of each of these orders is to be filled at a desirable price, promoting profitability. Often, the difference between a winning and losing trade comes down to how well orders are filled.

Trading under a DMA framework gives market participants the ability to engage the marketplace with maximum efficiency. Featuring lower latencies, order book data, reduced slippage and likely price improvements, DMA is viewed by many as being a vital part of a successful active trading endeavour.

Russell Shor

Russell Shor

Senior Market Specialist

Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…

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