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Introduction to direct access trading

Direct access trading has revolutionized trading in the late 90's.

At that time many traders were still not aware of the tremendous advantages it offers, especially for the active trader. Imagine being able to place an order with the push of one button and to get executed instantly. This is what direct access trading is all about. The traditional way to route orders was to call your broker, who would then send your order to his person on the exchange floor or to the market maker to actually execute your order. After that is done the whole process reverses in order confirm what happened with your order. If you are lucky this process will only take a few minutes, but in many cases it takes much longer. For some time now people have used online trading, which in most cases is not much different to the traditional way, with the exception that your order gets sent electronically to your broker who then processes it.

With the introduction of direct access trading order execution has improved dramatically. You are now able to route your order directly to the exchange without any middlemen involved. Access to the market that was formerly only available to institutions and market makers is now available to everyone. You can decide which way your order is going to be routed and you can change or cancel it at any time in an instant.

level 2 screen

On your level 2 screen you can see all the competing bids and offers for any stock listed at the Nasdaq. Every market maker and every ECN is displayed in the level 2 window and you can directly trade with them. Think about how fast your voice travels over the phone? This is the speed you can use for routing your orders. It works solely electronically via the internet and there are no middleman involved.

There are different order routes integrated into every direct access trading platform, which allow you to send orders to the various market participants.


The main advantages of Direct Access trading are numerous and very important. The first of which is a trader's ability to direct their trade, which enables them to compete directly with other Market Makers and ECN's. The second advantage is the speed at which quotes and executions occur. Previously quotes were given at only the Best Bid or Best Offer without the depth of the market being shown. Now with Direct Access Trading and level 2, you can see the depth of the market so that you can make a more informed decision. All of this contributes to yet another advantage, which is increased liquidity in the marketplace. Finally, the last advantage is that with more information, faster executions, and more liquidity a trader will have a greater chance of making profitable trades.