The financial market deals with the exchange of financial instruments which are traded such as securities, commodities, derivatives and other instruments. It includes dealing with trades and includes price information for securities. There are different types of financial markets, which include Capital Market, Derivative Markets, Commodities Markets, Foreign Exchange Markets, and Money Markets.
What is Direct Market Access (DMA)?
Direct Market Access includes electronic trading facilities. It helps investment companies and private traders to use the information technology infrastructure of sell-side companies like investment banks. Direct Market Access (DMA) is provided by sell-side companies. These give access to different strategies. The investors can place their order directly without involving market makers. It was facilitated by Instinet for the very first time.
Benefits of Direct Market Access (DMA)
• It offers low transaction cost as only technology is for paid
• Originators handle the orders directly. This provides them with control over final execution and price opportunities.
• Provides the opportunity to the user for accessing the “Trade the Spread” stock. Involvement of the broker is nullified.
• Since the trading is done using Direct Market Access (DMA) provider’s identity is anonymous and therefore information leakage is minimized.
Disadvantages of Direct Market Access (DMA)
• A Penalty is imposed on the traders whose account is inactive or has not trade enough in a particular time period. Traders need to be regular in trading.
• DMA is known for variable spreads. It does not include fixed spreads. DMA is risky as trading in the variable spread is riskier than fixed spreads.
• DMA is only for serious traders who trade regularly. The amount of trading may amount to $1000 to $5000 or even more than that.
What is Straight through Process (STP)?
Straight through Process is used to gear up the transaction process. The transaction occurs electronically with no human intervention. It provides automation at the higher rate as a result of high-speed internet access. It includes various features like automation for back-office functions, accounting, auditing, automatic payment processing, verification, customer authentication.
Benefits of Straight through Process (STP)
Some benefits of Straight through Process include:
• The turnaround time is shortened
• For process management, metrics are improved
• AP processing cost has been minimized
• Data is received instantly which reduces settlement risk and client need not re-enter the data.
• Business is benefited and the process is faster, cheaper and easier
• Reduces complexity with time and money saving for the business
Difference between Direct Market Access (DMA) and Straight Through Process (STP)
Direct Market Access includes electronic trading facilities while in Straight through Process the transaction happens with no human intervention electronically.
When Direct Market Access (DMA) is offered by a broker, then Straight Through Process (STP) do not come into the picture.
The speed of execution is fast in DMA while with STP speed is regular.
In Straight Through Process, the broker acts as a counterparty. They send the trade to the marketplace through Liquidity Provider (LP). These providers compete in the market to get the best price. With Direct Market Access (DMA), you never have to deal with the broker. The trade is directly placed with the Liquidity Provider (LP).
Since, a broker is involved in Straight Through Processing (STP), you need to pay commission to that particular. While in Direct Market Access (DMA) there is no need to pay any commission as no broker is involved.
There is no dealing desk in both Direct Market Access and Straight Through Processing. The quoting price can range from 4 to 5 digits in both DMA and STP.
Side by Side Comparison