Either you’re quick or you’re dead.  This is one of the cardinal rules in investing either in the financial or capital markets.  Money could be had or lost in milliseconds, particularly during extremes of volatility that usually happens in these markets. It used to be that deals were made in the stock market mainly through stock brokers with whom buy or sell orders could be transmitted by phone.  Pre-arranged stock price levels could also be set to execute buy or sell orders on a particular market issue. Then with the advent of computer technology, stockbrokers also went online, opening Internet-based trading systems.

Timing and speed are essential in the execution of stock market deals through the traditional or online systems as both would require using one communication medium or another: either a phone or the Internet, which could be subject to difficulties or interruptions.

Among the trading systems currently available, dealing with online brokers is the most easily accessible.  Anybody who’s a credit card holder and connected to the Internet could possibly enter into stock market investments through trading via online brokers.  However, there are drawbacks in utilizing brokers online.  Execution of orders online could be relatively slow such that the speed and timing of transactions are seriously jeopardized to the detriment of an investment’s profitability. Also, and more importantly, the ordinary, individual investors are at a disadvantage compared to professional traders from large financial institutions which have all the resources for fast and efficient system and rapid access to any information that may move the market and stock prices either up or down.

As essentially, all players or traders in the market are competing against each other, the playing field, therefore, has to be levelled so that the individual investors will have a fighting chance in this game called stock market trading. In comes direct access trading to help out the small, individual investors. Rather than go through brokers, this new system has been developed to enable an investor to trade directly in the stock market. Through direct access trading technology, stock trading is executed with specialists or market makers directly on the stock exchange floor, whether at the NYSE or NASDAQ.  Without the broker or the middleman, speedy trading is expedited and valuable minutes or seconds are allowed for an individual to make a trading strategy or decision.  High- speed computer connections to stock exchanges and front-end trading software are the main components of direct access trading systems.  Execution of trading using these systems takes only fractions of a second and transactions’ confirmations are displayed on the traders’ computer monitors immediately.

This speed advantage is inherent in all direct access trading systems.  Nonetheless, individual traders or investors still have to analyze which of these systems would be most closely suitable to their specific speed requirement, as well as cost effectiveness and performance.

The offerings in direct access trading software systems vary widely.  For example, some may have so-called Level II Quotes.  Direct access trading here features a Level II screen wherein the traders have access to a complete price listing for bid and ask stock quotes as well as the volume of the orders, enabling them to monitor the market closely.  A trader can commence a transaction just by clicking on the particular price an order will be placed.  The next step is for the trader to determine the size or the order volume for the stock price chosen.  The direct access trading system software will trigger a pop up window to appear on which the trader can enter in the number of shares to be ordered.  In some direct access software systems, default values could be merely pasted to the pop-up order window, so that transactions are further streamlined and valuable seconds or minutes are saved, particularly when multiple transactions are being executed.

Another hub working to the advantage for direct access trading systems are the electronic communication networks (ECNs).  In simple terms, an ECN is a stock exchange that completely functions electronically.  Through this electronic clearing house, computers match buyers and sellers. No middleman is necessary as traders execute orders directly from their computers’ direct access trading systems which electronically send them to the ECNs at an almost instantaneous speed of within fractions of a second. Direct access trading software systems are user-friendly and would usually include some electronic trading tutorials for a quick and easy course on ECN transactions.

The ECNs are not the only venues to route stock orders.  Direct access trading systems also allows transactions with many market makers who float orders around on the systems’ quote screens.  These market makers place these orders either behalf of their clients who most often are big financial companies or from the trading accounts of the market makers’ firms.  These floating orders could also be those routed from online brokers in a practice where online brokers receive a rebate for routing orders to the market makers in a practice termed as ‘payment for order flow’. This practice brings in another advantage to using direct access trading instead of an online broker wherein the trader has no say on where to send the order.  With direct access trading systems, the trader can deal with the market maker who offers the best price.

Prospective users of direct market access trading should be careful in choosing which software systems to use as some transaction commissions may actually cost more than those charged by an online broker.  This situation arises from the possibility that an online broker may be taking payment for order flow from the market maker, enabling online brokers to charge lower commissions.

A scaled schedule of fees form the basis of commissions for direct access trades which is determined by the number of trades executed by the trade in a given time period, for example calendar months. In other words, trading volume per month may dictate the commissions charged by most direct-access trading brokers.  Hence, you will get cheaper rates if you trade more in a month.

Typically, commissions would be between $15 and $25 for every trade, with an additional ECN charge from if an order was executed via an electronic communication network. A direct access trading broker also usually passes on to the client-traders the fees involved in the transaction, such as exchange modify and cancel fees, and specialist fees. All in all, the total fees for every trade may range from $15 to $35.

However, also be prepared to shoulder the levy for the use of the software of some direct access trading firms.  These companies may wave this software fee, nevertheless, if the trader meets a minimum quota of trades, for example total monthly trades of 50 to 300 transactions executed.   Other firms do not charge platform fees to their client-traders, but what they provide to save on cost are direct access trading platforms that are at the lower end among such software systems. Monthly charges will be imposed if you chose to upgrade the system.  Generally, software or direct access trading platform fees could be in the range of $50 to $300 monthly.

When you access the services of a direct account trading broker, two account minimums will be your options.  One type of direct-access account is balance minimums that could amount to several thousands of US dollars.  You will be required more deposits should you choose to engage in direct access day trading as defined in US stock market regulations.

The other type is called activity minimums.  With this account, you will be charged an inactivity fee if you do not reach the minimum trading volume per month set by the direct access trading broker.  One broker for instance has a US$ 10 inactivity fee per month for those accounts that generate commissions of less than US$ 10.  This inactivity fee is used to pay transaction fees and commission per month.  In short, an inactivity fee comes out as the minimum commission charged by the direct access trading brokers.  Nonetheless, you are also likely to encounter brokers who will not charge inactivity fees.

Inasmuch as in effect you will be in competition with others engaged in direct access trade, it would be beneficial to scout the competition so to speak and learn about those who engage in this stock market activity.  Most typically, direct access traders are independent-minded individuals confident of making trade moves even without outside advice.  They are do-it-yourself persons motivated by the costs that could be dramatically reduced if they moved on their own, and by the speedy decisions that they could make as individuals to take advantage of certain market situations.

Among these direct access traders are some swing traders who ride on the fluctuations of high momentum stocks.  These traders rely on lightning-fast execution of orders as they may need to quickly get out if the market tide turns against their positions, especially when stock prices are very volatile.  Direct access trading is also for the event-based traders who keep track of the news or reports of incidents that affect market movement each trading day.  When there’s a rumor of a major news about to happen, there will be volatility in the market, precisely the playground for these type of traders as they thrive in grasping emerging opportunities that could be lost if there’s hesitance or delay in execution even for just a second.  Traditional stock trading via online would work to their disadvantage.  A similar personality would be the day traders who rely on high daily trading volume to earn their keep.  With their heavy kind of business, direct access trading firms extend to them the best trading platforms and software as well as provide substantial discounts on brokers’ fees and commissions.  There are also so-called scalpers in direct access trading, traders likewise executing large volume orders but for small gains.  Here, they will need the speed of the electronic direct access trading system as slow order execution could spell the difference between profit or loss.

Long-term investors, however, are not wont to be engaged in direct access stock trading.  Essentially, these type of traders hold on to a position for a long period of time.  The inactivity and platform fees would discourage these long-term investors.  Greenhorn traders mostly avoid direct access trading as this venture requires some level of knowledge, experience and expertise in stock trading.

In summary, there are pros and cons in engaging in direct access trading.  One great advantage of direct access trading is its speed in executing orders.  Transaction fees could also be lower for trade done through the right direct-access trading platforms.  Generally, cost of transaction would be on a per share basis of say US$0.005 per share.  In contrast, traditional brokerage firms rate their charges on a per-transaction scheme, such as US$5 per share.

The direct access trader can also control price slippage to the minimum, allowing the opportunity to execute a transaction at a better price especially when the market is quite volatile.  Direct access trading systems also enable the investor to choose   specifically where to send orders, whether it’s to the Electronic Communications Network, the market makers or specialists.

One disadvantage, however, is that direct access trading is not for every Tom, Dick and Harry who wants to earn some from stock trading.  Inexperienced or novice traders are only likely to get burned if they insist in indulging in this type of stock trading activity which requires seasoned trade decisions and experienced routing of orders.  Another drawback, particularly for beginners, is the volume requirement which if not met will result in minimum monthly charges.

But for those who already have the required knowledge and experience, what is necessary in going into direct access trading is to weigh the costs and the activity levels that they could sustain in a given period.  Also, there are many direct access trading brokers to choose from, so it is advisable not to rely on a single firm and its software or platform.  The wise trader and investor will always have a back-up should things turn sour with the current system in use.