There was a time when trading at stock exchanges was a challenge. However, with the increase in online marketing, stock exchange trading is now just a click away with minimum to no interference of the brokers. Furthermore, the introduction of Direct Market Access (DMA) is all set to change the scenario completely. As a rather evolving field, many including those directly in the business of stock exchange trading, are not sure about what DMA is and how it works.
What is DMA?
So, what is DMA? Well, it is a solution or a facility by which a client can place his/her orders directly in the trading system. While this facility has been in use in the international stock markets, it is a brand new concept for the Indian counterpart. But before you understand the advantages of DMA, it is necessary that we throw some light on how stock exchange markets operate and how trading takes place.
How Does It Work?
Stock exchange markets allow interactions between buyers and sellers only through brokers. With the rise of the electronic trading systems, there has been a significant change in the stock exchange market. The electronic trading systems have reduced the importance of face-to-face communication and in place, have helped in matching the best buy order with the best sell order automatically. Now, online trading does not involve any manual intervention but it requires validation of the order by the online trading system of your broker before it reaches the trading system of the stock exchange.
DMA, takes stock exchange market trading one step ahead. With this facility, brokers can now install trading terminals with direct access to the trading system of the stock exchange. Thus, the clients can place the orders without any intervention by the broker. DMA is available only for institutional clients such as mutual funds, insurance firms and foreign institutional investors.
Benefits of DMA
The benefits of DMA are many. Read the following for a detailed understanding.
- DMA offers direct control over your orders. As a result, it reduces the risk of wrong entry of orders in the trading system by the brokers. Also, errors on the part of the brokers should not bother you any more, as it is all in your hands.
- DMA promises a better execution of trading strategies of the investors. After you place an order, you can sit back and relax and wait for the right opportunity without having the brokers pestering you to buy or sell.
- Secrecy of your trading strategy is well maintained too. Your broker will never know about the stocks you are going for or the ones you are currently dumping.
- Last but not the least; DMA facilitates faster execution of orders. Since you are placing the order directly, you are saving the time that is spent on interacting with the brokers. Alongside, DMA paves the way for algorithm trading or program trading. This type of trading enables computer programs to take decisions of buying and selling within seconds without the command of the user.
Knowing the use and benefits of DMA helps in faster and more effective operations in stock exchange trading. Make sure you are aware of its way of operations to derive the maximum benefits.