There are a lot of online brokers to choose from but as a day trader it is important to make sure you are using a direct access broker.
When traders use direct access brokers to place orders, they are sent directly to the exchange, bypassing any middlemen.
Typically, this leads to faster executions than one can achieve when using conventional online brokerage firms.
Choosing a direct access broker is one of the most important decisions you will make as a day trader as it will help you get fast fills which can sometimes lead to better prices.
This guide will explain what is direct access trading, why direct access trading is important for day traders, what to look for in a direct access broker, and brokers that offer direct access as well as those that don’t.
What are direct access brokers?
These brokers provide advanced trading tools that are optimized for execution and speed. They target highly active traders who value precision executions and fast access to liquidity.
Direct access brokers are different from conventional brokers in that they tend to have a higher concentration on execution over research and fundamental analysis functions.
Conventional online brokerage firms normally direct customer trade orders to centralized trading desks that route to predetermined liquidity providers through pre-agreed order flow arrangements or the firm’s own market makers. They cater to retail swing traders and self-directed investors.
Why direct access trading is important for day traders
- Direct access trading allows traders to execute trades at extremely fast speeds compared to online brokers who use a middleman to route orders
- Direct access brokers provide advanced trading platforms to help traders with trade execution
- Unlike traditional ways of making trades, direct access trading gives traders full control of their trading on the markets
What to look for in a direct access broker
Direct access brokers ought to execute trades and maintain the best standards as well as they can for clients. In short, they need to have particular qualities to ensure the success of a transaction.
These qualities include, but are not limited to:
- Trading platform: When choosing a direct access broker, pick one that offers a highly specialized trading platform packed with an array of features including programmable scanners, programmable routing modules, algorithm capabilities and hot keys. Some brokers also have algorithmic routing that searches out the best routes on behalf of traders.
- Routes: Routing ensures access to more liquidity and the market, which is a top priority for active traders. This means you can access dark pools and target specific exchanges and ECNs to snatch liquidity immediately, unlike when you use conventional online brokers where the broker usually bundles your orders together with a number of different orders.
- Pricing: Traders will certainly be required to pay some commission on direct access trades. However, not all direct access brokers offer the same volume discounts or charge the same commissions.
Most direct access brokerage firms offer per-share commissions often with a sliding scale that is based on the volume of shares traded monthly. The more volume you trade, the more discounts you can get.
- Customer service: This might seem like an obvious one, but some brokers are completely anti-customer. Therefore, make it a priority to contact the customer service departments of various brokers to see who responds to your inquiries and how long it takes them.
Brokers that offer direct access
LightSpeed offers direct access using its Lightspeed Trader software, a proprietary platform that has more than 100 order routing options. The platform allows traders to access direct orders on specific routes and different market makers.
To access the market directly using this platform, you will need to have the $25,000 minimum required brokerage balance for day trading stocks in the United States.
Lightspeed Trader offers two-tiered commission structures: per trade and per share. The more frequently you trade or the more volume you trade, respectively, each month, the lower your rate will be.
TradeStation offers direct access as well as a variety of research and analysis tools. This broker supplies direct market access through its advanced trading tools. Traders can use it to trade stocks, futures, options, bonds or exchange-traded funds.
TradeStation’s advanced order-entry tool called the Matrix features advanced order routing and tracking tools as well as a detailed market depth to guarantee you get the best trade prices.
Interactive Brokers provides direct access via its Trader WorkStation platform that connects day traders to stock markets. Interactive Brokers has API solutions for clients that want to build their own systems.
Traders have unprecedented control over their orders, thanks to IB’s advanced order routing and Level II market data.
In the direct access plan, Interactive Brokers charges $0.005 a share for stock and ETF trades, with $1 minimum. IB also offers discounts for high volumes.
TD Ameritrade – thinkorswim Platform
TD Ameritrade is another large online broker that offers direct market access through their thinkorswim platform. Thinkorswim is a very powerful trading platform that meets the needs of most active traders and the best part is it’s free if you have an account with TD Ameritrade.
SpeedTrader PRO application provides direct market access with 25 different order routing options. The platform gives traders access to Level II quotes among a variety of liquidity and exchange providers. Its charting and research tools are also better than what is offered by other direct access brokers.
If your account balance is under $25,000, SpeedTrader will charge you $6.95 per trade. A trader with an account balance of more than $25,000 enjoys $4.49 commissions on trades or 0.0044 cents a share. SpeedTrader also offers discounts for high volume traders.
Launched in 2013, Capital Markets Elite Group (CMEG) currently offers trading in stocks only. Traders using this broker get to choose from several software platforms and direct-access routing is available on some of the platforms.
What’s more, CMEG does not have the pattern day trading (PDT) rule in place because the company is located outside the United States.
Cobra Trading is an excellent broker that offer sophisticated tools for active traders, including direct market access.
Brokers that don’t offer direct access
Most popular, mainstream brokers don’t offer direct market access because their target clientele are passive investors or casual traders who don’t need that speed for order fill.
Having direct market access is crucial particularly if you are an active trader who trades on a short time-frame.
With direct access, you will be able to interact with stock exchanges directly, improving execution speed and liquidity.
Prices can vary for direct access so make sure to double check with your broker so you understand their pricing!