Rajandran R Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, USDINR and High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in and Co-Creator of Algomojo (Algorithmic Trading Platform for DIY Traders)

What is Direct Market Access?

3 min read

Direct market access (DMA) is a trading system that allows traders to place orders directly into the exchange’s order book, bypassing the need for a broker or other intermediary. This allows traders to have more control over the execution of their trades and potentially achieve better prices.

In India, DMA is available for both equities and derivatives markets. To use DMA, traders must have a trading account with a DMA-enabled broker, as well as a depository participant account and a clearing member account. They must also meet certain eligibility criteria and complete the necessary documentation. Institutions providing DMA services must be registered with SEBI as trading members of the relevant exchange.

One advantage of DMA in India is that it allows traders to access the full depth of the market, rather than just the top of the book as is the case with some other types of trading systems. This can be particularly beneficial for traders who are looking to execute large orders or who need to trade a high volume of shares.

However, DMA is not without its risks. Because traders have direct access to the exchange’s order book, they are responsible for managing the risk of their trades, including ensuring that they have sufficient collateral to cover any potential losses. This can be challenging for traders who are not experienced in risk management.

List of providers of DMA services in India:

  1. ICICI Securities
  2. HDFC Securities
  3. Kotak Securities
  4. Axis Securities
  5. Religare Broking
  6. Edelweiss
  7. Angel Broking
  8. Motilal Oswal Securities

Reasons why Institutions Prefer DMA Access?

  1. Greater control: DMA gives traders more control over the execution of their trades, as they are able to place orders directly into the exchange’s order book. This can be particularly beneficial for traders who are looking to execute large orders or who need to trade a high volume of shares.
  2. Better prices: By bypassing brokers and other intermediaries, traders using DMA may be able to achieve better prices on their trades. This is because they are able to access the full depth of the market, rather than just the top of the book as is the case with some other types of trading systems.
  3. Speed: DMA allows traders to transmit orders to the exchange more quickly, potentially allowing them to get a better price on their trades.
  4. Reduced costs: By bypassing brokers and other intermediaries, traders using DMA may be able to reduce their trading costs.
  5. Risk management: DMA allows traders to manage the risk of their trades more effectively, as they have more control over the execution of their orders.

Types of DMA Access

  1. Fully disclosed DMA: In this type of DMA, the trader’s identity is disclosed to the exchange and other market participants. This allows the exchange to apply any applicable fees or charges to the trader’s account.
  2. Non-disclosed DMA: In this type of DMA, the trader’s identity is not disclosed to the exchange or other market participants. This can be beneficial for traders who are looking to remain anonymous, but it also means that the exchange cannot apply any applicable fees or charges to the trader’s account.
  3. Sponsored DMA: In this type of DMA, the trader’s orders are routed through a sponsoring broker, who acts as an intermediary between the trader and the exchange. This allows the trader to access the exchange’s order book without having to go through the process of becoming a member of the exchange.
  4. Unsponsored DMA: In this type of DMA, the trader’s orders are placed directly into the exchange’s order book without the use of a sponsoring broker. This requires the trader to become a member of the exchange and meet certain eligibility requirements.

How Direct Market Access is different from Co-Location Servers?

Direct market access (DMA) and co-location servers are two different types of trading systems that are used to facilitate the execution of trades.

DMA is a system that allows traders to place orders directly into the exchange’s order book, bypassing the need for a broker or other intermediary. This gives traders more control over the execution of their trades and potentially allows them to achieve better prices.

Co-location servers, on the other hand, are high-speed computers that are located physically close to the exchange’s servers. By using a co-location server, traders can reduce the time it takes for their orders to be transmitted to the exchange, potentially allowing them to get a better price on their trades.

One key difference between DMA and co-location servers is that DMA allows traders to have direct access to the exchange’s order book, while co-location servers simply speed up the transmission of orders to the exchange. DMA also typically requires traders to have a direct trading account with the exchange, while co-location servers can be used by any trader who is able to pay for the service.

Conclusion

Overall, DMA can be a useful tool for traders who are looking for more control over the execution of their trades and who are willing to take on the additional risk management responsibilities that it entails. It is important for traders to carefully consider the pros and cons of DMA before deciding whether it is the right choice for their needs.

Rajandran R Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, USDINR and High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in and Co-Creator of Algomojo (Algorithmic Trading Platform for DIY Traders)

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