Saturday, January 18, 2020

Trading in UK as private Investor- Direct Market Access (DMA)

Direct Market Access (DMA) enables private investors to place buy and sell orders directly on our order books and trade like market professionals.

Direct Market Access (DMA) is a service offered by some stockbrokers that enables sophisticated private investors to place buy and sell orders directly on the London Stock Exchange order books. With DMA private investors can level the playing field and trade like market professionals. 

Traditionally a broker has sent an investor's order to a specialist market maker known as Retail Service Provider (RSP), however DMA now provides you with a choice. DMA allows you to take greater control of your trades by using a broker to place your orders directly on the central market along with all the other market participants. A relatively new service for investors in the U.K. but a benefit which has been enjoyed by investors for sometime in other major markets around the world.
The key benefits of DMA include:
  • Equal playing field: Every order is of equal status on the order book, prioritised only in terms of price and time.
  • Visibility: Orders are visible to the entire market allowing all market participants full contribution to central market liquidity.
  • Depth of order book: The order book shows the number of buyers versus the number of sellers and at what price they are willing to trade.
  • Set your own price: Limit orders can be entered at whatever price you choose and will be available to the entire market.
  • Tighter spreads: As limit orders are displayed publicly rather than held privately, market spreads become tighter, benefiting the order placer, who has a higher chance of getting executed at the price and the market as a whole which has a tighter public reference price to work from.
  • Auction participation: You can participate in the pre-market and post-market auctions where the highest or lowest price often occurs.
  • Peace of mind: Regulation and market supervision by the Exchange.
  • Certainty: The order book is always available during trading hours.

To start trading via DMA you will need to set up an account with one of the available DMA provider.
DMA providers
To start trading via DMA you will need to set up an account with one of the DMA providers below. In addition, your chosen broker will be able to advise you on Level 1 and Level 2 data and how to subscribe to them.
Currently brokers offer Cash and CFD (Contract for Difference) services.
IG Markets**
Interactive Brokers**
Background to trading
Gain a better understanding of the differences between non-order book trading and order book trading.
Non-order book trading
Private investors trade shares through stockbrokers. Brokers typically request prices from a number of market makers called RSPs who offer prices in “retail” (relatively small) sized volumes.
The price supplied to you by a broker is the best price they have been quoted by the RSPs they deal with. These, in turn, are based on the price available on the London Stock Exchange’s order books. Traditionally, you can only trade via your broker at the price supplied by an RSP and unexecuted limit orders are warehoused by the broker and not displayed to the entire market.
Order book trading
While stockbrokers typically execute trades through the RSP network, the majority of institutional trading takes place on the Exchange’s order books. Larger securities trade on order books which electronically match buyers and sellers.
An increasing number of brokers now offer DMA, which enables you to enter your own orders directly onto the order book without the need for an RSP intermediary. This provides the opportunity to:
  • trade in larger sizes than typically available from RSPs
  • set your own price rather than simply take the price offered by the RSP
  • display unexecuted limit orders to the entire market
Level 2 market data
Level 2 market data provides the most comprehensive and in depth set of data available on trading activity. Learn about level 2 market data in order to trade more effectively via DMA.

Click here to download a copy of the 'Guide to Level 2 Market Data'.