What is DMA?
DMA - Direct Market Access - is a type of FX execution where traders are offered direct access to the physical market, enabling them to place trading orders with liquidity providers (leading foreign exchange banks, other brokers, market makers etc).
Sounds similar to STP and ECN dealing? It's close, but there is a difference.
DMA (Direct Market Access) is offered by ECN brokers and by some STP brokers.
In fact, ECN brokers always offer DMA, but not all STP brokers offer DMA. Let's take a look at the differences.
Do you know another DMA Forex broker?
Please suggest by adding a comment below. Thank you!
DMA/STP vs STP
With regular STP (Straight Through Processing) - a broker will fill clients' orders (though Instant execution) on his own side. Then a broker will go to hedge these orders with own liquidity providers.
Since a broker seeks profits in this hedging operation, traders can experience re-quotes if there is no profitable hedging opportunities for a broker at the very moment your trading request was submitted.
The price you get from an STP broker will be higher than the best price a broker can receive from the liquidity provider.
With DMA/STP (Direct Market Access STP) - a broker will pass clients' orders directly to the liquidity providers, where it'll be filled at the best available price with one of the liquidity providers (+ a small fixed mark-up from the broker).
This is done using Market execution, which ensures that all orders will be filled at the best offered rate (which, however, might not be the exact rate you clicked on (your connection speed combined with short-lived price bids from liquidity providers), but since DMA technology always has only real tradable prices, there will be no re-quotes, your trade will always be opened and closed on your click.
DMA/STP brokers
DMA/STP brokers provide transparent direct access to the best bid/ask prices offered by liquidity providers.
Unlike regular STP brokers:
1) DMA broker has a greater number of liquidity providers;
2) DMA broker never offers fixed spreads, only variable, because bid/ask prices constantly change as they come from liquidity providers;
3) DMA order execution is always Market execution;
4) There is no re-quotes.
5) DMA can also offer Depth of the Market book (similar to ECN), where traders are able to see all bid/ask quotes from different liquidity providers;
6) DMA trading model welcomes traders of all types and styles: scalpers, news traders, swing traders, position traders or other regular traders.
DMA vs ECN
Spread competition
Each DMA broker has his own contract with each liquidity provider (LP), and even with the same LPs these contract conditions may vary from broker to broker.
Even then, DMA spreads are quite competitive comparing to ECN. This is explained by 2 factors:
- ECN brokers are connected to anonymous ECN pools (where there are no direct contracts with each LP). Inside these ECN pools brokers may not receive the best possible rates from all liquidity providers (for example, banks are known to hold back their best prices inside ECN pools).
- ECN technology solutions (facilitation, processing, execution) come at a cost, which has to be paid for.
DMA/STP broker doesn't have fewer technology expenses and no ECN-associated expenses. The spreads from DMA/STP brokers remain low because these brokers enjoy the best direct price quotes from the banks and/or other liquidity providers. To make profits, DMA/STP brokers add small mark-ups to all spreads they pass from liquidity providers.
Execution
- DMA price rates are streamed directly from liquidity providers, which are committed to their bid/ask offers. This ensures that there will be no re-quotes, rate rejections or partial fills.
- While due to the nature of ECN liquidity pools (where anonymous participants can place "illusive" orders and then reject them) traders might see more re-quotes, slippage and partial fills.
Fee Structure
- ECN brokers are compensated though commission.
- DMA brokers add a small fixed mark-up on the spreads, but there is no commission.
(Some DMA brokers can also charge monthly volume fees (including inactivity fees) based on investor's trading volume. Thus if you don't plan to trade frequently and with high volume, you may end up paying higher fees for the privilege to trade on best price quotes and low spreads with such DMA brokers).
Other
- DMA and ECN brokers offer only variable spreads;
- both have fractional pricing;
- both have DOM (Depth of the Market) orders book, although you won't always see it with DMA/STP brokers.
As DMA becomes more popular, it rises the standards of execution technology and overall trading quality.
Related topics:
STP Forex brokers
Market execution vs Instant execution
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trader
May 3, 2011HI BG
I would like to know more about DMA, is that the liquidity providers will be client's counter party? Is there any stop hunting will happen?
Thank You!
BrokerGuru
May 4, 2011Yes, liquidity providers will be counterparties to your trades with DMA.
There always has to be one, no matter if it's:
a) a deliang desk - the broker himself is your counterparty
b) a no-deliang desk STP or DMA - one of the liquidity providers will be your counterparty
c) a no-deliang desk ECN - again one of the liquidity providers will be your counterparty.
With the DMA model stop hunting is not possible, because your order is sent to the liquidity providers anonymously, so that they don't know where your stops and profit targets are.
Luis
May 11, 2011Hello. i am professional, and i choosed HotForex to trade 2 weeks ago. Was a risky move because the site is not knows yet because have less than 3 years. However i am ultra hapy, never got a requeote, spreads are great, and in news time it dontchanges almost nothing. So i love it.
My account is Currenex account, and i would like to ask u if thi s account is ECN or STP/DMA.
Oh, and if u can, pelase give meur opinion about this broker
Luis
BrokerGuru
May 11, 2011Hi Luis,
Currenex account at HotForex is an ECN account with $5.00 commission per 100k round turn lot.
At our site we cannot provide opinions/suggestions/recommendations about any Forex brokers. Our goal is to collect data and facts and offer this information to traders. Thank you for your understanding.
Luis
May 13, 2011Hi Broker Guru:
First of all i would like to tell that in my opinion this Site (100ForexBrokers.com ) is the best forex Site in the world to take doubts, congratulations for that.
Now let me correct 3 things because i want contribute to the sucess of ur Site:
1- I am sure that Hotforex have 6 liq providers, and not 5, u can confirm with support
2- I am sure hotforex in currenex account takes 10$ per round lot trade and not 5$, they wrote 5$ in the site but its not per round lot Trade, its 5$ per per 100,000 USD Traded
Now the last thing and more important, i talked with support in order to know if they are DMA or if they are STP or ECN, and i told i had Currenex account, and they guaranteed me that even in currenex account they are STP and not ECN, i talked with 4 different support members, and all told me that my account (currenex) was STP, actually they dont use never ECN
So i would like to ask u 2 things:
1- Is possible that u are wrong about currenex being ECN ?
2- I want to start trading based on the news (in my case 5 seconds after the new released i will open position manually, not with buy or sell stops or limits), never did it in my life but will start soon, so what i want is a broker that allow me to open positions when the prices are moving ultra fast without requotes , and more important, in the price of the moment i clicked in.
For this kind of strategy what kind of Broker u reccomend me ? ECN STP or DMA ?
Another thing, i will buy always 8 lots, that big number of lots can make me loose the price or so ?
One more thing: can i get your direct mail or facebook ?
Luis
BrokerGuru
May 13, 2011Hi Luis,
Thank you for the feedback.
I'm a little bit behind the schedule with emails, sorry about that.
1 - updated.
2 - updated. Thank you!
Regarding your questions:
1 - yes, after doing one more check and talking to support I finally realized that I was wrong. HotForex doesn't work with ECN liquidity, but rather with several own liquidity providers. The commission was added to compensate for the low spreads (basically you can treat it a mark-up). So, in the end, we have HotForex "Currenex" account, which is STP, it's in fact DMA/STP.
2 - despite all beliefs it's tricky to trade during the news. I would say that the best execution should be from DMA brokers (no requested while on market execution, but you could get slipped if price moves fast, still you get filled), then second place goes to ECN (though DMA and ECN are pretty equal, DMA is a bit more straight-forward in terms of guaranteed executable quotes that ECN). Regular STP brokers won't be suitable for news trading.
8 lots is not a large order for any broker, you should have no problems with that.
info@100forexbrokers.com is the direct mail, it's my email, where I answer to all inquiries. I don't have a facebook page, somehow never tried to create one..
PetroB
June 14, 2011Broker Guru,
I checked on the Harbour FX site, and they charge commissions. This would mean, I believe, that they are not a true DMA/STP.
PetroB
BrokerGuru
June 15, 2011Hi PetroB,
DMA/STP brokers can choose to charge commission, it's fine. There are a few brokers who do that.
Gábor
June 24, 2011Hi,
Pepperstone is listed both as an ECN/STP and a DMA/STP brokerage. Am I right to think that it is because of the two different accounts they offer? I'm a bit at a loss.
Gábor
BrokerGuru
June 24, 2011That's right, Gábor
At Pepperstone you have:
- Razor accounts ($200), which are ECN.
- Standard accounts ($200), which are DMA/STP.
trader
July 4, 2011Hi , i noticed that LCG is listed under ECN group on your site and after reading their site it looks like they are STP/DMA type , which is better in your opinion ECN or STP/DMA ? thanks
BrokerGuru
July 5, 2011As far as we know, LCG offers ECN trading, but it shouldn't be a problem to ask broker where they send the orders to:
- if they work with only certain banks/liquidity providers according to their contracts - e.g. with own liquidity pool - that's DMA dealing.
- if they send orders to the ECN pools - where there is an unlimited number of participants, no individual contracts signed - that's ECN dealing.
DMA price quotes are considered to be more reliable = read "executable", since they come from known liquidity providers, who commit to their prices with little to no rejection.
Let me further confirm this by quoting one of the brokers who explains this DMA vs ECN difference:
"With ECN's, it's an open portal essentially allowing anyone to become a market maker to your trades.
Whether it's client matching, stp, or filled as house risk to counterparty. Inside an ECN, most banks don't price very well which means most of the tight pricing is coming from other clients, hedge funds, or the broker hosting the pool themselves. If that is the case, then you really aren't avoiding any of the issues why people are leaving the dealing desk model. With open forums allowing anyone to price, this can cause re-quotes, major slippage, partial fills, phantom liquidity, etc.
With a true DMA model, since the only liquidity providers are banks, the pricing coming in and the depth of book, is executable not phantom or other market makers looking to gauge the market then rejecting orders. Since all orders are instantaneously passed through to the pricing banks on a best bid/ask basis, they have committed to be here for the clients providing tight streaming rates with no re-quoting, no partial fills, and a low rejection rate (less than half of 1 percent)."
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