Trading: An algorithmic arms race

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Direct market access DMA is a term used in financial markets to describe electronic trading facilities that give investors wishing to trade in financial instruments a way to interact with the order book of an exchange. Normally, trading on the order book is restricted to broker-dealers and market making firms that are members of the exchange. Using DMA, investment companies also known as buy side firms and other private traders use the information technology broker et trader difference between races of sell side firms such as investment banks and the market access that those firms possess, but control the way a trading transaction is managed themselves rather than passing the order over to the broker's own in-house traders for execution.

Today, DMA is often combined with algorithmic trading giving access to many different trading strategies. Certain forms of DMA, most notably "sponsored access," have raised substantial regulatory concerns because of the possibility of a malfunction by an investor to cause widespread market disruption. As financial markets moved on from traditional open outcry trading on exchange trading floors towards decentralised electronic, screen-based trading and information technology improved, the opportunity for investors and other buy side traders to trade for themselves rather than handing orders over to brokers for execution began to emerge.

The implementation of the FIX protocol gave market participants the ability to route orders electronically to execution desks. Advances in the technology enabled more detailed instructions to be submitted broker et trader difference between races with the underlying order.

The broker et trader difference between races conclusion to this, enabling investors to work their own orders directly on the order book without recourse to market makerswas first facilitated by electronic communication networks such as Instinet. Recognising the threat to their own businesses, investment banks began acquiring these companies e. Most major sell-side brokers now provide DMA services to their clients alongside their traditional 'worked' orders and algorithmic trading solutions giving access to many different trading strategies.

There are several motivations for why a trader may choose to use DMA rather than alternative forms of order placement:. Advanced trading platforms and market gateways are essential to the practice of high-frequency trading. Order flow can be routed directly to the line handler where it undergoes a strict set of Risk Filters before hitting the execution venue s.

The race for ultra-low latency direct market access is a hot topic amongst high frequency traders, Brokers and technology vendors such as Artha Financial TechnologyFusion Systems Raptor, Ullink or Fidessa. One area in which low-latency broker et trader difference between races can contribute to best execution is with functionality such as direct strategy access DSA [3] and Smart Order Router.

Foreign exchange direct market access FX DMA broker et trader difference between races to electronic facilities that match foreign exchange orders from individual investors and buy-side firms with bank market maker prices. FX DMA infrastructures, provided by independent FX agency desks such as DMALINKconsist of a front-end, API or FIX trading interfaces that disseminate price and available quantity data from multiple bank contributors and enables buy-side traders, both institutions in the broker et trader difference between races market and individuals trading retail forex in a low latency environment.

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