Forex and the evolution of Direct Market Access
Posted: Tuesday, October 20, 2009
by Michael Markarian
Divisa Capital
The Forex market is a decentralized market which has been historically fragmented. This has resulted in inconsistent trade execution on the part of most brokers since they operate in various capacities. Direct Market Access (DMA) now enables traders to transact their orders directly with sources of liquidity or primarily Interbank participants.
Forex DMA orders are only based on two variables (1) Price and (2) the time that the order is placed. The result is efficient execution where requotes are rare regardless of the market conditions.
Forex DMA pricing is based on institutional standards of 1/10 th of a pip pricing as opposed to or 1 pip pricing. Retail brokers typically quote using to 1 pip to capture the difference in their favor.
Forex DMA brokers also offer trading anonymity which gives the trader a level playing field.
Unlike traditional brokers that offer fixed spreads, a Forex DMA broker offers variable pricing that reflects the true market conditions in the Interbank Forex market. Brokers that offer fixed spreads are most likely acting in the capacity of a market maker and taking the risk on the client orders. While this is not inherently negative, it reduces transparency and calls into question the order handling process. DMA brokers eliminates this concern.
Until recently, DMA trading has only been available for larger institutions and hedge funds. With a vast improvement in trading technology, DMA can now be accessed by the trading public through the DMA brokers.
Forex DMA via Currenex is offered by DivisaFX which acts in an agency capacity to channel customer orders to 11 top tier banks within the Interbank market.
For more information please visit www.divisafx.com
Divisa Capital LP (DCFX) is an investment house that provides spot foreign exchange trading services to a diversified client base that ranges from financial institutions through to private individuals.
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