When you trade with a traditional brokerage account, you don’t actually access the stock market. Your order goes to your brokerage firm’s trading desk before it’s passed off to a market maker, who then looks for a counterparty on an exchange. That’s a lot of mouths to feed, but most investors happily pay for the convenience (along with the market research).
However, sophisticated investors capable of high-speed trading don’t need the bells and whistles of traditional brokerages. They need speed. And that’s why many of them turn to direct access brokers.
Quick Look: The Best Direct Access Brokers
- Best overall: FOREX.com – Open an account
- Interactive Brokers – Open an account
- SpeedTrader – Open an account
- LightSpeed – Open an account
- TradeStation – Open an account
What’s Direct Access?
A buy-and-hold investor doesn’t need detailed stock quotes and lightning fast trade execution. No, you simply buy a few ETFs or mutual funds on your Schwab brokerage account and sit back for a few decades. But day traders need quotes quickly and can’t wait around for a trading desk to funnel out their orders.
Direct access is exactly what it sounds like — a live look into the plumbing of the market. If you use a direct access broker, traders can see orders executed in real-time by various liquidity providers. For example, if you look at a Level II quote using TD Ameritrade’s thinkorswim, not only will you see share total and price, but also the market maker that executes the trade.
Traders with direct access see something usually only the market makers are privy to — the order book of an exchange. As you look at a Level II quote on your computer, what you really see is the NASDAQ’s order book, a list of all the trades currently queued up from various financial firms and market makers. If you get a glimpse of the machinery of the market, it can benefit you in a number of ways.
Benefits of Direct Access
Direct access is most beneficial for day traders or investors who want to trade in large volumes. When you have direct access, you have information about order sizes, firms involved in the trade and prices they’re getting. Information like this can be used by day traders to make rapid decisions. For example, if a trader interested in Tesla stock sees a big firm like Citadel scoop up a huge quantity of shares, you might be inclined to follow that trade.
Here are a few of the benefits direct access can bring traders:
- Fast execution: The simplest aspect is also the most important. Speed rules everything when it comes to day trading and direct access brokers let traders move in and out of positions in fractions of a second.
- Get eyes on the real market: With direct access, you’ll see the order book in real-time. You can see which market players make big trades, which exchanges the trades are taking place on and how many shares or units are moved. Real-time info like this helps day traders rapidly jump into (or out of) positions.
- Discounts for volume: Direct access brokers usually charge commission by the share, but since they aren’t getting paid for order flow, you’ll often get discounted rates for supplying liquidity.
- Your order goes where you want it: Direct access brokers don’t send orders to trading desks. Traders can choose where their order is directed, whether it’s an exchange, electronic communications network (ECN) or market maker.
Direct access brokers don’t go heavy on research and analysis, so investors looking for economic data or education materials will likely be more comfortable at traditional brokerages.
What to Look For in a Direct Access Broker
Preferences for direct access brokers may vary depending on the securities you want to trade and the capital you have to fund an account. You can expect to pay fees and deposit a high amount to get started with a direct access broker. The best direct access broker have some of the following qualities:
- Low commissions: You’ll certainly be paying some sort of commission on direct access trades, but not all brokers charge the same or offer the same volume discounts.
- Accurate pricing: Any quote delays could be dangerous for a day trader’s capital. Real-time accurate price data is a must for direct access trading.
- Quality customer service: When you use a direct access account, you don’t have the brokerage holding your hand through the trade. You spot the trends, place the order and direct it to the exchange of your choice. Find a brokerage with a good customer service reputation so you aren’t left with unanswered questions about your orders.
- Platform support: If MetaTrader 4 is the trading software you’re most comfortable using, make sure you choose a broker that supports it!
The Best Brokers Offering Direct Access
Using the above criteria, Benzinga has compiled a list of the best direct access brokers on the market today. Some are forex brokers, some are stock brokers, but all of these firms give you access to the order book and quickly executed trading.
- Traders of all skill levels
- If you need a great mobile experience
- Those who like easy-to-consume data and research
FOREX.com has three different account types for currency traders, but the DMA account is the one that provides access to the forex market’s plumbing. DMA account holders pay no spread on their forex traders, only commission.
Traders who move less than 100 million units in volume per month pay $60 per million units traded, but discounts up to 67% exists for high volume traders moving 2 billion units or more per month.
FOREX.com supports MetaTrader 4 and pays interest on available daily margin balances. You’ll also get a dedicated market strategist to walk you through trades if you need support.
There’s no account minimum for DMA, but trades must be at least 100,000 units in size. If you’re a currency trader in the United States, FOREX.com is one of the best forex brokers available.
- Forex traders
- Professional traders
- Frequent traders with a thirst for different order types (63!)
2. Interactive Brokers
Interactive Brokers provides direct access through its Trader WorkStation platform, which connects account holders to exchanges like Nasdaq, ARCA, BATS and more.
Forex trading is unavailable to United States customers, but there are plenty of other options for Americans looking for direct access.
Interactive Brokers provides Application Programming Interface (API) solutions for traders who want to build their own systems. Advanced order routing and Level II market data give traders unprecedented control over their orders.
The commission can be as low as $1 per 100 shares for retail traders and discounts are available for high volumes. You’ll need $2,000 minimum to open an account.
SpeedTrader only offers stock and options trading, but SpeedTrader PRO application provides direct market access with 25 different order routing options.
SpeedTrader PRO gives access to Level II quotes among a variety of exchange and liquidity providers. However, the charting and research tools are better than the offerings from most direct access brokers.
Clients with account balances under $25,000 are charged $6.95 per trade and are ineligible for day trading permissions but 400 monthly trades will get you a discount. Accounts over $25,000 enjoy $4.49 commissions on trades or 0.0044 cents per share. Volume discounts exist as well. If you move 15,000,000 shares per month, you can see commissions as low as 0.001 per share.
- Frequent traders looking for volume discounts
- Professionals who need a powerful platform: Lightspeed's Level II, Livevol X, and RealTick Pro
- Intermediates who are looking to advance their trading knowledge and strategy
Lightspeed certainly lives up to its name. This New York-based brokerage provides direct access using its Lightspeed Trader software, a proprietary platform with over 100 order routing options.
The Lightspeed Trader API allows clients to use the C++ programming language to access different market makers and direct orders on specific routes.
To use Lightspeed Trader, you’ll need the $25,000-day trader minimum. The Web Trader account only requires $10,000, but to access the market directly you’ll need $25,000. Volume discounts are available for high-frequency traders too, starting at 250,000 shares. Standard per share commission is 0.0045 cents per share ($1 minimum) and standard per trade commission is $4.50.
Options and futures contracts are available for 60 cents apiece also.
TradeStation is a Florida-based brokerage that offers not only direct access but a wave of research and analysis tools usually only found on traditional brokers. You can buy stocks, ETFs, futures, options and bonds on TradeStation, which supplies direct market access through its advanced trading tools.
TradeStation doesn’t have a fancy name for its platform, but its advanced tools pack a punch. The Matrix is a detailed look at market depth with order routing and tracking tools to guarantee you get the best trade prices.
Monthly share volume of 100,000 makes you eligible for discounted commissions too, which is a much lower threshold than other direct access brokers. Otherwise, you pay $5 per trade and $50 per option contract.
The Final Word
Direct access is a great way for traders to gain control over order flow and get the best possible prices on trades. But the speed and sophistication of direct access are necessary only for the most dedicated day traders.
Using Level II data and programming API takes an advanced and experienced trader. Buy-and-hold investors would be better served at traditional discount brokerages.