Barry Johnson - Algorithmic Trading & DMA.pdf

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Direct market access DMA is a term used in financial markets to describe electronic trading facilities that give investors wishing to algorithmic trading and dma download in financial instruments a way to interact with the order book of an exchange.

Normally, trading on the order book is restricted to broker-dealers and algorithmic trading and dma download making firms that are members of the exchange. Using DMA, investment companies also known as buy side firms and other private traders use the information technology infrastructure of sell side firms such as investment banks and the market access that those firms possess, but control the way a trading transaction is managed themselves rather than passing the order over to the broker's own in-house traders for execution.

Today, DMA is often combined with algorithmic trading giving access to many different trading strategies. Certain forms of DMA, most notably "sponsored access," algorithmic trading and dma download raised substantial regulatory concerns because of the possibility of a malfunction by an investor to cause widespread market disruption. As financial markets moved on from traditional open outcry trading on exchange trading floors towards decentralised electronic, screen-based trading and information technology improved, the opportunity for investors and other buy side traders to trade for themselves rather than handing orders over to brokers for execution began to emerge.

The implementation of the FIX protocol gave market participants the ability to route orders electronically to execution desks. Advances in the technology algorithmic trading and dma download more detailed instructions to be submitted electronically with the underlying order.

The logical conclusion to this, enabling investors to work their own orders directly on the order book without recourse to market makerswas first facilitated by electronic communication networks such as Instinet.

Recognising the threat to their own businesses, algorithmic trading and dma download banks began acquiring these companies e. Most major sell-side brokers now provide DMA services to their clients alongside their traditional 'worked' orders and algorithmic trading solutions giving access to many different trading strategies. There are several motivations for why a trader may choose to use DMA rather than alternative forms of order placement:.

Advanced trading platforms and market gateways are essential algorithmic trading and dma download the practice of high-frequency trading. Order flow can be routed directly to the line handler where it undergoes a strict set of Risk Filters before hitting the execution venue s. The race for ultra-low latency direct market access is a hot topic amongst high frequency traders, Brokers and technology vendors such as Artha Financial TechnologyFusion Systems Raptor, Ullink or Fidessa.

One area in which algorithmic trading and dma download systems can contribute to best execution is with functionality such as direct strategy access DSA [3] and Smart Order Router. Foreign exchange direct market access FX DMA refers to electronic facilities that match foreign exchange orders from individual investors and buy-side firms with bank market maker prices. FX DMA infrastructures, provided by independent FX agency desks such as DMALINKconsist of a front-end, API or FIX trading interfaces that disseminate price and available quantity data from multiple bank contributors and enables buy-side traders, both institutions in the interbank market and individuals trading retail forex in a low latency environment.

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