Best DMA Forex Brokers In 2021
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.
True DMA Attributes
- only Market execution
- only variable spreads
- only 5 digit pricing
- optional feature: DOM access (depth of the market book access)
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 their own liquidity providers.
Since a broker seeks profits in this hedging operation, traders can experience re-quotes if there are 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 they’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 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 are 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
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.
- 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 “elusive” orders and then reject them) traders might see more re-quotes, slippage and partial fills.
- ECN brokers are compensated through 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 the 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.
- 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 raises the standards of execution technology and overall trading quality.