What is a direct access market?

Traders are allowed to have direct interbank access in direct market access (DMA). Because of this, they can place trading orders with core liquid providers.

Liquidity providers and the hierarchy of the forex market

To further understand how direct market access works, let us discuss two of its elements: the liquidity providers and the interbank.

In forex trading, the hierarchy starts with the interbank. Then these enumerated identities will follow:

  • Major banks
  • Electronic brokering services/ Reuters dealing 3000 — spot machine
  • Average and small banks
  • Retail brokers, retail electronic communication networks, hedge funds, and commercial companies
  • Retail traders

On the other hand, liquidity providers are like mediators in a securities market. They continuously sell securities in any market conditions and then buy more to keep the liquidity, hence their name.

More on the direct market access

If forex traders wish for more transparency and control, direct market access is perfect for them. However, even with a trader having direct liquidity access, the order will still need to pass through the broker. The broker’s trading role is being a middleman between the trader and the immediate access to liquidity providers. If we are in the liquidity provider’s shoes, he is not directly transacting with the trader since he is transacting with the broker that stands for the trader. When a trader has access to the entire market depth, then they will gain more market insights. They can also have more control over trades as they will directly know the liquidity provider’s best bids and offers.

If you are a trader with direct market access, you can buy and sell orders straight to the order book of an underlying asset without the need for an intermediary. This type of trading has more transparency and control if you compare it to the traditional way which is over the counter since the trades are placed directly on the books of exchanges. The charges are commissioned and not through the spread.

How does a DMA account work?

Let us assume that you are a trader and you placed a limit order through a DMA ticket. This order will quickly go to the execution venue, and they will become bids and offers for the other liquidity pool participants. However, you must make sure that your margin is enough at the entry time and when the stop or limit price gets triggered.

In another scenario, let us assume that you placed a stop-loss order through a DMA ticket. This order will then be held at the execution venue. It will be contingent once the price gets triggered before liquidity pool exposure.

Contract for differences and direct market access

Let us explain in detail how DMA and CFD trading is connected. First, DMA will display the best bid and offer price available in the market and the different prices on any side of the order book. After placing an order, your CFD provider will ensure that you have enough on your account balance for the margin. You and your CFD provider will create a parallel CFD as soon as the CFD provider verifies that you have enough on your balance. As long as you trade with market prices, you will not have any equity or currency rights that form your CFD subject.

Is DMA relevant?

It is relevant, especially if you are already an experienced and advanced trader who wants more transparency and control. This provides a closer view of the market so you can access the best prices available in the market.