|
|
There are two ways to day trade electronically, namely:
1. Conventional online trading using your Internet browser and a Web based
broker
2. Direct Access Trading systems using specialized software and a private
network
It is important for day traders to understand the key features of, and the
differences between, these two forms of electronic trading.
Conventional online brokers provide Web based trading whereby the client
logs in through the broker's Web site and places orders through his
Internet browser. By the time client loads his browser, waits for the
broker's Web page to load, logs in, enters his order, and the broker
reviews the order, several minutes may have elapsed. Further time may
elapse before the order is actually executed after being received and
reviewed by the online broker because several intermediaries may be
involved in handling the order.
By way of contrast, Direct Access Trading (DAT) systems allow one to
trade stock directly with a market maker or a specialist on the floor of
the exchange, using special trading software and high-speed computer
linkages to the Nasdaq, NYSE and the various Electronic Communications
Networks (ECNs). With a DAT trading platform, a trader may place orders
directly into the market in real-time and trade directly with a market
maker on Nasdaq, a specialist on the floor of the NYSE, or with an ECN,
without any broker participation at all. There are no middle-men involved
between the relevant stock exchanges, ECNs and the individual trader. If
there is a sufficient number of shares available at the price specified by
the trader, the order is executed in a fraction of a second and a
confirmation is instantly displayed on the trader's computer screen.
Because no middle-man is involved, the trader will save anywhere from a
few seconds to several minutes of time to complete a typical trade.
Accordingly, the major advantage of a DAT system is that it results in
much faster executions than one can normally achieve using a conventional
online broker.
Another major advantage of using a DAT over a conventional online broker
is that, by using a DAT platform, a trader may choose a specific market
maker or ECN that he wants the order sent to. A DAT system will provide
the trader with access to Nasdaq Level II quotes, thereby allowing him to
see, in real-time, all of the available prices for each ECN and market
maker. The trader can then route his order to that particular ECN or
market maker where he thinks he is most likely to get the best price. With
a conventional online broker, the trader has no control over where the
order is sent and, in any event, relatively few online brokers provide
their clients with Nasdaq Level 11 quote information.
Most firms who supply DATs charge commissions based on a scale
which depends on the number of trades that a trader makes over a given
time period, plus a small additional fee for trades placed with an ECN.
The greater the number of trades, the lower the commission per
transaction. Commissions typically range from $10 to $15 for a 1000 share
transaction. In addition, most DAT suppliers charge a fee for the use of
their proprietary trading software, usually in the range of $100 to $300
per month. However, this charge is sometimes waived if a trader makes a
minimum number of trades per month.
|
|
