DMA – Direct Market Access – is a type of FX execution where traders are offered direct access to the physical market, enabling them to place trading orders with liquidity providers (leading foreign exchange banks, other brokers, market makers etc).
Sounds similar to STP and ECN dealing? It’s close, but there is a difference.
DMA (Direct Market Access) is offered by ECN brokers and by some STP brokers.
In fact, ECN brokers always offer DMA, but not all STP brokers offer DMA. Let’s take a look at the differences.
only Market execution
only variable spreads
only 5 digit pricing
optional feature: DOM access (depth of the market book access)
AAAFx
Abshire-Smith
ACFX
Advanced Markets
AFX Capital
Araxo4x
AssetsFX
Atom8
Axiory
AxiTrader
BELARTA
Core Liquidity Markets
Darwinex
Direct FX
Divisa Capital
DQFX
Euro Pacific Bank
Elxi Markets
FBS
Bulls Capital Markets
Fidelis
FinFX
Forex FS
Forex4you
FW Markets
FP Markets
FXFair
FXOptimax
FxPlayer
FxUnited
Gallant Capital Markets
Goldstein Brokers
HotForex
IamFX
IKON Markets
Invast
Investorseurope
JFD Brokers
Key To Markets
KRC
LiteForex
LMAX
NAS Broker
OctaFX
OloFx
One Financial Markets
OneTrade
Pepperstone
Real-Forex
Renesource Capital
RoboForex
Sensus Capital Markets
Sterling Gent Trading
Sun Hung Kai Forex
Sunbird
ThinkForex
Trader’s Way
Tradestation Securities
Tradeview
UpFX
Valbury Capital
Velocity Trade
Vunani Private Clients
WH SelfInvest
XGLOBAL Markets
ZAR FX
With regular STP (Straight Through Processing) – a broker will fill clients’ orders (though Instant execution) on his own side. Then a broker will go to hedge these orders with own liquidity providers.
Since a broker seeks profits in this hedging operation, traders can experience re-quotes if there is no profitable hedging opportunities for a broker at the very moment your trading request was submitted.
The price you get from an STP broker will be higher than the best price a broker can receive from the liquidity provider.
With DMA/STP (Direct Market Access STP) – a broker will pass clients’ orders directly to the liquidity providers, where it’ll be filled at the best available price with one of the liquidity providers (+ a small fixed mark-up from the broker).
This is done using Market execution, which ensures that all orders will be filled at the best offered rate (which, however, might not be the exact rate you clicked on (your connection speed combined with short-lived price bids from liquidity providers), but since DMA technology always has only real tradable prices, there will be no re-quotes, your trade will always be opened and closed on your click.
DMA/STP brokers provide transparent direct access to the best bid/ask prices offered by liquidity providers.
Unlike regular STP brokers:
DMA broker has a greater number of liquidity providers;
DMA broker never offers fixed spreads, only variable, because bid/ask prices constantly change as they come from liquidity providers;
DMA order execution is always Market execution;
There is no re-quotes.
DMA can also offer Depth of the Market book (similar to ECN), where traders are able to see all bid/ask quotes from different liquidity providers;
DMA trading model welcomes traders of all types and styles: scalpers, news traders, swing traders, position traders or other regular traders.
Spread competition
Each DMA broker has his own contract with each liquidity provider (LP), and even with the same LPs these contract conditions may vary from broker to broker.
Even then, DMA spreads are quite competitive comparing to ECN. This is explained by 2 factors:
ECN brokers are connected to anonymous ECN pools (where there are no direct contracts with each LP).
Inside these ECN pools brokers may not receive the best possible rates from all liquidity providers (for example, banks are known to hold back their best prices inside ECN pools).
ECN technology solutions (facilitation, processing, execution) come at a cost, which has to be paid for.
DMA/STP broker doesn’t have fewer technology expenses and no ECN-associated expenses. The spreads from DMA/STP brokers remain low because these brokers enjoy the best direct price quotes from the banks and/or other liquidity providers. To make profits, DMA/STP brokers add small mark-ups to all spreads they pass from liquidity providers.
Execution
DMA price rates are streamed directly from liquidity providers, which are committed to their bid/ask offers. This ensures that there will be no re-quotes, rate rejections or partial fills.
While due to the nature of ECN liquidity pools (where anonymous participants can place “illusive” orders and then reject them) traders might see more re-quotes, slippage and partial fills.
Fee Structure
ECN brokers are compensated though commission.
DMA brokers add a small fixed mark-up on the spreads, but there is no commission.
(Some DMA brokers can also charge monthly volume fees (including inactivity fees) based on investor’s trading volume. Thus if you don’t plan to trade frequently and with high volume, you may end up paying higher fees for the privilege to trade on best price quotes and low spreads with such DMA brokers).
Other
DMA and ECN brokers offer only variable spreads;
both have fractional pricing;
both have DOM (Depth of the Market) orders book, although you won’t always see it with DMA/STP brokers.
As DMA becomes more popular, it rises the standards of execution technology and overall trading quality.
Related topics:
STP Forex brokers
Market execution vs Instant execution
