Direct market access (DMA) definition

What is direct market access (DMA)?

Direct market access (DMA) is a way of placing trades directly onto the order books of exchanges. As a result, DMA offers traders flexibility and transparency when trading. But due to the risks and complexities involved, it is usually recommended for advanced traders only.

How does DMA work?

With DMA, a trader is able to interact with stock or currency exchanges, via a broker. At IG, you can access DMA by trading CFDs on shares, as well as through our Forex Direct offering.

When you place a DMA trade with a CFD, we take the position in the underlying market and you’d receive a CFD with us. This is a derivative that enables you to speculate on the market price, but without having to own the asset in question.

DMA example

Let’s suppose that you wanted to trade shares via DMA. You would search the DMA platform for the best price available to either buy or sell the underlying market.

Next, you would place an order and – if you were trading with leverage – your broker would carry out a check to see if you had enough margin to open the position. If you weren’t trading with leverage, you would need to have the full amount of money required to open the position in your account.

Once the necessary checks have been satisfied, your order will be placed directly onto an exchange’s order books, where you can see other market participants’ orders and gauge market sentiment in your chosen asset.

Pros and cons of direct market access

Pros of DMA

With DMA, all orders are visible to the entire market, which enables market participants to effectively gauge market liquidity – as the order book of an exchange will show the total number of buyers and sellers.

Also, because all orders are of equal priority in terms of price and time in the order book, DMA creates an equal playing field between different market participants – making it possible to see other trader’s movements and effectively gauge market sentiment.

Finally, since prices are gathered from a wide selection of global banks, stock or currency exchanges and liquidity providers, you can be sure that DMA offers competitive prices.

Cons of DMA

While there are a range of pros, there are also several cons to DMA such as a possibility of increased risk due to its complex nature. This is why it is usually recommended to advanced traders only.

DMA is heavily regulated, which can be a good thing because it ensures that trades are carried out in a responsible way. However, it can also make trading less flexible than over-the-counter (OTC) trades.
It’s also worth noting that DMA prices are not necessarily better than OTC, because many brokers’ pricing technology is designed to find the best available prices on both OTC and DMA markets.

One final thing to be aware of when trading share or forex CFDs via DMA with IG is that because we take a parallel position in the underlying market, once an order has been executed, you cannot change or reverse the position. However, you can still close your position at any time.