Enter Direct Access Trading

According to Investopedia, direct access trading (DAT) is a system that allows for directly trading with other clients, floor specialists, and NASDAQ market makers without a broker’s interference. It might be expected that the sought-after benefit would be lower costs, but in reality, this isn’t why investors are interested in DAT. Instead, it’s all about speed.

Why Is Speed So Important?

Speed is crucial for certain day trading strategies. The fastest strategies rely on the ability to capitalize on market changes of only a few seconds long. Getting a trade order to a broker, who must then relay the information to his firm’s floor specialists, can take longer than the market change the day trader is trying to pin down. This makes it so the day trader must use a method that cuts one or more hops out of the communication loop.

Is It Always a Good Idea to Go for Speed?

For most people, who will hold stocks for years or even decades, the online brokerage is the best choice. It offers decently-fast trades at cheap prices, and doesn’t require investors to go into minutia, like which floor specialist actually executes their positions.

Those whose profits depend on pricing swings that are only a few seconds or a few minutes long, on the other hand, can’t afford to wait for a broker to get around to sending their trades in. Their trading volume also makes it so that the tiny differences between the prices offered by various floor specialists will quickly add up. For them, it’s definitely worth it to go with DAT to eliminate the vagaries inherent in dealing with brokers.

What about Cost?

Direct access trading often costs more than online brokerage services, so those who are most interested in lower commission fees should go with the brokerage. DAT only makes sense when its speed will result in enough profit to make up for the higher charges.

How to Direct Access Trade

Direct access trading is done online. It’s the connectivity of the internet that makes it possible for general investors, rather than those directly associated with the trading floor, to use the method. In order to get connected to those who can carry out DAT trades, investors have to run one of several approved programs. These programs offer the interface through which trades can be ordered.

It’s important to note that, despite the online component, DAT programs are not the same as online brokerages. Online brokerages can delay trades for times ranging from seconds to minutes as they batch trades and send them to their preferred floor specialists. With online brokerages, investors also have no control over which floor specialists are used. Therefore, in some situations the investor may not end up getting the best possible prices on the securities themselves.

DAT software programs are often keyed to work with particular exchanges. The first one that was authorized worked with NASDAQ, but now, the other exchanges have decided to go ahead and allow individuals to access DAT

What Does a DAT Interface Look Like?

Current interfaces are generally very basic, and just give the required stats and the minimum functionality needed to get the job done. This makes them look very technical, to the point that those new to the concept will likely find them intimidating. That said, they do work, and with a bit of study and practice, can be mastered to the point that the desired trading speed can be obtained. New investors should simply expect to need to devote a bit of extra time to the learning curve instead of jumping right in and get a good idea of what categories and formats can be found in various programs.

No matter what kind of trading an investor does, there is a modern option available. Carefully examine these options before choosing one. That way, the need for low cost and the need for speed can be properly balanced for a better opportunity to help achieve profitable trading.

The post What Is Direct Access Trading and Who Should Use It? first appeared on eOption.

What Is Day Trading?

Day trading involves picking up (opening) positions in securities early in the day and then closing them out before trading ends the same day. While for some, early morning is a preferred time for taking on positions in stocks, futures, options, and other securities, they can actually be opened at any time during the day. Positions can also be closed at any time during the day, though the close of business is can be a popular time for some.

A trader will typically spend the day attentively watching a computer screen and opening or closing positions according to what the current stats are saying. The requirement for close attention makes it so that day trading isn’t nearly as easy as buying into a bunch of things in the morning and then selling them off in the early evening.

While many people think of this activity as being meant to try to get rich in a day at the cost of high risk, the reality is that some investors think of it in the exact opposite way. These investors are actually hoping to minimize risk by getting out of all positions before drastic overnight changes can affect prices, and they accept a lower chance of instant wealth as a consequence of lowered risk.

Which set of investors is correct? In reality, both could be said to be right (or wrong). The amount of risk is partially connected to the investing style used and which types of trades are made.

How Is Day Trading Done?

Different investors have different answers to the question of how to day trade. Typically, they will choose specific systems based on their personalities, goals, and overall knowledge of trade-based investing. Some of the most popular systems include:

Short-term trading. Also known as “scalping,” this method involves holding positions for as little as a few seconds all the way to a couple of minutes. The goal is to get out of a position the moment it shows a profit.
Swing or position trading. Investors using this style will keep their positions longer. They may hold a position throughout the entire trading day, but will still close it out by the end of it.

Types of Day Trades

The types of trades day traders make also vary. These include:

• Trend trades. These positions are opened with the assumption that the security will keep following its current trend. If prices are going up, stocks or other securities are purchased.
• Counter-trend trades. With these positions, the investor is betting that the current trend will reverse. In this case, securities are purchased if their prices are dropping in the hopes that the prices will significantly rise again by the close of business.
• Ranging trades. These are made when the market is sideways. Positions go between two prices that are intended to capitalize on the securities whether they rise or fall.

Day trading for beginners is often quite a bit different from that done by those who have been at it for years. That’s because it’s a good idea to master the basics before moving on to complex varieties. Another important thing to keep in mind is that not all trades make money. In fact, it’s possible to have days where every trade will be a loser. Because of this, many of those who have engaged in day trading recommend starting out with a significant amount of seed money so that one or two bad days don’t put an end to the endeavor.

What Type of Brokerage Should Be Used for Day Trading?

Since the volume of trades is so high, the fees of traditional brokerage firms will all but surely kill the profit. Therefore, day traders prefer discount online brokerages to do their trades. Their much-lower fees can be what makes the difference between success and failure. Trading online is also faster since there’s no need to talk in order to execute positions. Clicking takes a fraction of a second, while it can take several seconds just to communicate an order orally. This seems to make the online option the more efficient choice when it comes to day trading.

The post What Is Day Trading and How Is It Done? first appeared on eOption.