Who Uses Direct-access Trading?
Direct-access trading is primarily for self-helped and active traders who value speed of execution and try hard to minimize costs and slippage. Also they get to take care of themselves and make trade decisions on their own (without the help of stockbrokers or advisors). These people typically include:
- day traders - they trade a lot per trading day. Direct-access brokers can give them front-end trading software and platforms and offer deep discounts on commissions and brokerage fees.
- scalpers - they trade in a large volume for small gains. Slow execution may kill profits, and even incur losses.
- momentum (event-based) traders - their trading decisions based on news or incidents happened in normal trading days. When the news breaks out, the market will usually become very volatile. They need lightning fast execution to enable them to grasp these opportunities; the difference between success or failure may be determined in just a second. A delay of seconds to minutes, as is common in traditional online trading, would therefore not be acceptable to such traders.
- momentum (technical-based) day or swing traders - they trade on high momentum stocks, in which it has high volatility. They need their orders executed lightning fast, and may need to get out quickly if the market goes against them.
Direct-access trading is not typically for:
- (long-term) investors - slippage is important to frequent traders, but it amounts to only a dollar or so for each trade. They hold a position for a long time. Each trade may earn them substantial profits to cover those small slippage losses. Some direct-access brokers charge inactivity and platform fees. These costs may not justify direct-access trading for long-term investors.
- novice traders - Direct-access trading typically requires experience and knowledge.
- inactive traders
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