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May 28, 2020 12:11 PM EDT

Understanding Direct Market Access FX Brokers

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Understanding Direct Market Access FX Brokers

(Photo : Understanding Direct Market Access FX Brokers)

The forex market is riled with uncertainty. Every second, thousands of trades executed in the currency market not only makes trends short-lived but also adds to the importance of cutting down on any trade-related delay. Traders can only stay competitive, and tread the path of financial success if they can adopt highly efficient trading practices. One such method is to open a DMA account to start trading Forex.

Direct Market Access brokers are relatively new to the FX realm, but before unearthing the potential they offer to traders, let's make a basic sense of the term- DMA. Direct Market Access, also known as DMA, offers traders the opportunity to directly buy or sell orders without getting routed through any intermediaries. 

Traditionally, forex trading was executed through market makers, that used to get quotes from stakeholders, and then offer their quotes to prospective traders. This not only added a delay in making instantaneous trades but also made the market less transparent. With the help of DMA brokers, traders get the opportunity to have a live visual of different prices of varying market orders and place their own orders after thoughtful evaluation. 

Sounds really lucrative for traders, but a vital question still stands, what incentives do DMA brokers have if they give up the right to decide prices and earn a commission?

How Do DMA Brokers Get Compensated For?

There is no direct commission for DMA brokers, but small incentives when a big volume is being traded on the FX market. When these brokers get direct quotes from high-profile liquidity providers and banks to make a spread for traders, they usually add minuscule markups, before passing these on.

Another policy that keeps the field lucrative for DMA brokers is monthly subscription fees. If traders fail to meet specific criteria of volume trading or remain inactive for a certain period of time, then they stand liable for an inactivity fee. The trade-off here then becomes, whether a trader still prefers to receive direct quotes from liquidity providers, even when they are willing to incur a higher fee if they intend to trade a lower volume each month.

Why Is DMA FX Trading Good For You?

Despite the direct access to different liquidity holders that DMA brokers provide to aspiring traders, there are various other merits that make this stream of trading very promising. Intuitively, the boost in efficiency gained by bypassing intermediaries makes trading very effective, given the fact that FX markets are highly volatile, and uncertain- where a minute can change the course of lucrative trend into a loss-incurring endeavor. 

The independence gained from market makers also improves the decision making of traders. With the help of DMA, traders are in control of their situations, because instead of being fed quotes from standard brokers, they have the freedom to independently lead a transaction. This control is uniquely beneficial to prevent financial damage that comes as a result of broker-created speculative bubbles.

Because of the fact that DMA traders make money by applying small markups to quotes from a large volume of liquidity providers, it is in their best interest to offer a greater number of currency-trading options to FX enthusiasts. This forms a win-win situation, as traders have more diverse FX trading opportunities, and DMA brokers can thriver better. The absence of intermediaries also guarantees greater anonymity and transparency, which improves the quality of trading.

Final Say

The traditional route of trading- one swarmed by intermediaries can make a trader uncompetitive in a highly cutthroat FX market. Efficiency is the future of forex, and DMA provides that. The most essential benefit that DMA offers is a vital delay-reduction, as when any trade intermediaries are fleshed out, the time of executing a trade automatically falls. This not only increases the efficiency of trading but also allows a faster order placement and trade execution.

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