Definition of direct access agent


What is a shortcut broker?

A shortcut broker is a stock broker that focuses on speed and order execution, as opposed to a full-service broker that focuses on investment research and advice. Direct access brokers often use complicated computer software that allows clients to trade directly with an exchange or with other people via electronic communication networks (ECNs).

Key takeaways

  • Shortcut brokers have become very popular with active traders due to their fast transaction times, but other services such as streaming quotes, interactive charts, Nasdaq Tier II quotes, and other real-time features have also contributed to this success. .
  • As markets become more efficient with technological improvements, the need for faster business execution is growing. More and more retail investors are entering the market with their smartphones rather than using a desktop computer or voice-directed exchanges with a human.
  • There are tradeoffs along the broker spectrum from full-service to very low-cost options. Sophisticated institutional investors with in-house research teams may not want to pay for full-service execution, which includes research and negotiation ideas.

As markets become more efficient with technological improvements, the need for faster business execution is growing. More and more retail investors are entering the market with their smartphones rather than using a desktop computer or voice-directed exchanges with a human.

Understanding a shortcut corridor

Shortcut brokers have become very popular with active traders due to their fast transaction times, but other services such as streaming quotes, interactive charts, Nasdaq Tier II quotes, and other real-time features have also contributed to this success. . These brokers have reduced their costs and increased efficiency by eliminating the role of the third party, which in turn allows them to charge a lower commission than traditional brokers.

The latest trend for online brokers is commission-free trading in stocks, ETFs, and options. However, most of these free platforms sell the order flow to market makers and HFT hedge funds. These arrangements are payments per order flow or PFOF.

Conventional online brokers generally direct clients’ trade orders to a centralized trading desk which is then directed to the company’s own market makers or other predetermined liquidity providers through pre-negotiated order flow agreements. These platforms tend to push fundamental research and analysis functions over pure execution services. These brokers cater to self-directed investors and retail traders.

There are tradeoffs along the broker spectrum from full-service to very low-cost options. Sophisticated institutional investors with in-house research teams may not want to pay for full-service execution, which includes research and negotiation ideas.

However, to capitalize on research and proprietary ideas, they will sometimes seek and pay a premium for quick trade execution. In contrast, investors who buy and hold for the long term do not require immediate execution, so paying a premium would not make much sense. But the research and advice that can be expensive to organize on their own can be a value-added service.

Advances in global capital markets, as well as information technologies, continue to reduce costs for financial market participants; In many ways, the traditional lines between full service and online discount brokerages are becoming increasingly blurred.

Shortcut corridor example

Suppose a client is looking to buy 100 shares of ABC. Because its broker, Market Brokerage of America, offers direct access to trades through an app and the ability to trade with a human over the phone, the client has a choice. One option is quick if the retailer is only looking for execution and the other option makes more sense if the customer needs more guidance from human help.

The decision to trade through the app made the most sense to the customer because they have already done the research on the ABC company and are familiar with the trading platform. This decision to use the app’s shortcut with your phone saves you time and commission money.

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Mark Holland

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