Direct Access - How exactly does it work?

[Jyde]

Hi all,

I do know that this is like asking someone how to drink water, but I am still going to attempt it.
I have been trading for about a year, only as SB, and have no problem with it per se, but
if someone would be kind enough to help me get on the next step and explain the (very) basics of Direct access trading...?

I trade only futures (DJ, NAS, S&P, FTSE, Gold, GBP/USD, EUR/USD) and using a SB internet based platform, I have it easy in many respects:
1. I only have one price, the one I see when I hit the button.
2. The stops and limits I set always gets filled at that one price.
3. Garanteed stop losses.
4. Small bet sizes (all the way down to 50p per pts).
5. 'Commision' is really the spread paid and nothing else, so easily calculated.
6. Multiple positions is just that. It is easy to create and equally so to take part profit.

I am sure that all know the above, but these are the very things that I do not know about direct access trading, and I was hoping someone could throw some light on how the points above compare. Put as questions:
1. Bid, ask, offer, etc... what price does one really get?
2. Do unattached orders get filled by the broker, or would it be my local software the handles that (ok, really basic , do I have to have my PC on to fill an order)?
3. I guess garanteed stop losses are down to the broker, but assume most will not do this, and I should expect slippage. (Apart from 9/11 situations, have bad is it on average?)
4. What's the minimum bet per point (again down to broker I guess, but just to have an idea)? I am a very small fish in this big ocean!
5. Is the commision on direct access just a one off fee that you pay on entry, regardless of size, hour, etc., or is it a percentage. I even see people talk about spread here, would that be on top too, just less than that of the typical SB broker?
6. Do you do independent positions, or just one big one that you can 'shave' off when you need to secure part profit?

I really am a bit ashamed of asking these very basic questions, but I have just been in my SB box since the beginning and never thought about it much until now.
I did use to favour swing trading, so the spread wasn''t such a big issue, nor does my broker have any bias (the price is alway the market price compared to my data provider), but my temperament is taking me towards intraday now, and that is just plain out of the question with the spreads I pay.

I am aware of the drawbacks of SB trading, so in no way do I intend to open up the war over which of the two is best! Really!!

I recognise that these are exceptionally ignorant questions, so if someone rather give me a few links where to find this information, I understand perfectly (I have read through this and other fora, and some broker's pages too. Problem is, it is always taken for granted that you know the very basics - my problem in a nutshell.

Help and enlightenment much appreciated!
Jyde

 

[ardhill]

Hi

I don't want to sound off hand, but there is a LOT to that answer.

Have a read at the following thread first and follow the link in a reply of mine, to the other website, where you will get more information.

If you still have a question or two ask away, it's just by them many of your questions will probably be answered and you will have a better idea of what you still don't know but would like to.

http://www.trade2win.com/boards/showthread.php?t=12466&highlight=direct+access

 

[henry766]

if your happy with futures stick with them , in every liquid futures mkt there is , it must be cheapest and most convenient ( with gearing especially) way of trading , the spread is also not a true spread as you can "play the spread if your patient ( scalpers ) which i'm not , but the spread with s bet companies is an instant loss , in my opinion thier strength is in stocks and shares where there is little futures activity and no other convenient way to increase gearing ( i personally think that of options too , ( not liquid in my view)!!

 

[Jyde]

Thanks for the replies. Ardhill, a lot of very good reading in there! And no, you do not sound off hand at all, just right. That was a lot of answer and it took a while to get through, but it has been highly educational... much needed!

I now know stuff that would have been good to know before I posted my question, as I also now know that it is really a different and much simpler question that I am asking.
(The references from Ardhill were not in vain! On the contrary, they reveal a heap of good info about the fundamentals, and I would recomment any fellow 'insecures'/newbies to follow through on them.)

I should have made clear that when I said I traded mainly the S&P, NAS and DJ, I mean the indexes only, and futures at that. I am comfortable with futures, and I will stick with them, I suspect.

What I should really have been asking then, is what is the alternative broker to an S/B broker og what are the main differences. As such, some of my questions still stand (albeit in a much more narrow and direct sense):
1. That one I am now clear on, thanks.
2. It was rather stupied, I guess. Here, mercifully, I am wiser as well.
3. Garanteed S/L. Still in the dark on this one. From what I have seen so far, it does not seem like the majority of non-S/B brokers garantee them. Is slippage a big problem in the real world? And does one put S/Ls on the ask or bid price, or can they be put on the actual market price?
4. Minimum bet sizes. Sorry, still not wiser on that onel. What is the smallest one the 'average' non-S/B broker would accept? (I know there can not be just one answer to that one, but just to have an idea, please.)
5. Same goes for commisions. Are they a fixed, one off per trade, regardless of bet size; and do they differ depeding on time and type of order?
6. Do one take one big position that can be 'shaved' or multiple positions when money managing? Or, put another way, does it work as with S/B brokers where multiple entries are needed?

I suspect most of what I ask is really down to the individual broker, though any hints of what I can expect would be very helpful.

Maybe what I need is to set up a fictitious trade and ask someone to tell me how exactly that would look with a their non-S/B broker, money-wise.
And/or find myself a demo account, I guess. Any recs?

Sorry for the confusion of the initial post. It was simply down to ignorance on my behalf. I hope my aim is better on this one.

CJ

 

[ardhill]

3. Garanteed S/L. Still in the dark on this one. From what I have seen so far, it does not seem like the majority of non-S/B brokers garantee them.

A guaranteed Stop loss does not happen in a 'real' brokerage. A brokerage is simply an agency for you to make your transactions, whereas a SB company is really a book maker, and you bet on the changes on the price rather than buying the shares.

You can set a stop loss in a brokerage, but if the share gaps past your stop - you loose. You will be filled at the first available price where someone is willing buy your shares off you. You need another person to transact with when you deal through a brokerage.

Is slippage a big problem in the real world?

It can be depending on which shares or futures you trade. The more volume a share or future has, the less slippage there is in a normal market (normal - i.e. I don't include exceptional circumstances such as a major piece of news when everyone 'pulls their bids' or offers ).

I normally deal in high volume shares so slippage is not really a big concern.

And does one put S/Ls on the ask or bid price, or can they be put on the actual market price?

The market price is the bid if you are selling and the ask (offer) if you are buying at 'market'. You can set your stop to be either by using a stop market order or stop limit order. Usually a stop loss is a stop market order i.e. if the stop is hit, you want out quick and are not trying to gain a cent or two on the price - just sell at market and get shot of the shares to the people who are offering to buy (or vice versa).

4. Minimum bet sizes. Sorry, still not wiser on that onel. What is the smallest one the 'average' non-S/B broker would accept? (I know there can not be just one answer to that one, but just to have an idea, please.)

Most brokerages are happy to accept trades of 100 shares, this is pretty close to your 50p spread bet if you are looking at a US share - it actually is the equivalent of $1 spread bet.

Some brokeragres will let you trade lower, but it just isn't worth it.

5. Same goes for commisions. Are they a fixed, one off per trade, regardless of bet size; and do they differ depeding on time and type of order?

Each brokerage is different and the fees can vary quite a bit. Two popular brokerages are Interactive Brokers and TradeStation, both charge 0.01c per share (US shares) up to 500 shares, then they get cheaper after that. So you can trade 100 shares for $1 each side, or the equvalent of a total 2 cent spread.

6. Do one take one big position that can be 'shaved' or multiple positions when money managing? Or, put another way, does it work as with S/B brokers where multiple entries are needed?

That's up to each trader and their own money management rules. You can buy a lot at once and sell off bit by bit, or buy a small number and add to the position or just buy and sell the same number.

BTW, Finspreads lets you open a position of say £2 a cent move, then you can sell off in 50p (or more) increments if you wish, you don't need to open multiple positions if you are buying all at the same time.

(Unless they have changed this)

Maybe what I need is to set up a fictitious trade and ask someone to tell me how exactly that would look with a their non-S/B broker, money-wise.

(To keep it simple, I will use £stg on a UK share, the same works with US prices, just the £/$ conversion comes into play)

Lets say your SB company is offering ABC company at 2401.5 - 2409.5
You bet £1 a penny that it is going to rise, so you buy at 2409.5
The price then rises 20p and the SB company is now quoting 2421.5 - 2429.5
You sell at £1 a penny at 2421.5 and make (2421.5-2409.5= 11) 11 X £1 = £11

***

A DA broker is showing ABC company @ 24.05 - 24.06
You decide to buy 100 shares at market - 24.06 (you could buy at the bid price and save 1p)
The commission so far is £1
The price rises 20p and the quote is 24.25 - 24.26
You sell again at the market price - 24.25 (again you could have sold at the offer price and gained another 1p) - (24.25-24.06=19) 19 X 100shares = £19
You also incur another commission for selling of £1


Total profit from SB company = £11
Total profit from DA broker = £17 (£19 less £2 commission)

As mentioned, you also had the option of buying at the bid price and selling at the offer price. But, at it is more simple and often faster to transact at market, we did in this example.

And/or find myself a demo account, I guess. Any recs

Sorry, someone else will have to answer that one for you.

Sorry for the confusion of the initial post. It was simply down to ignorance on my behalf. I hope my aim is better on this one.

None of us are born knowing these things.

 

[Jyde]

Thank you!

Ardhill, I would like to thank you for you reply. It has much to be said for clarity, and the time you have spend on spelling this out to me is much appreciated.
By this, I have managed to learn in leaps what would probably have taken me months by trial and error.

Jyde

 

[Gardan]

www.directaccesselite.com
Jyde , try this link above, I think they will allow real time demo for about two weeks. IB also have a demo but it is 15 min delayed.
Good Luck
Ardhil top answer, it still amazes me how some people take so much time to help others.

 

[Jyde]

Gardan, thank you for that link. I will check it out.
I have tried the IB demo account, though a bit confusing to the rookie, it is a good way to get more routined.

On a littel aside, for most of the brokers I have found they are US based and want money wired. Are the no European ones that can just credit and debit a credit card? Maybe there is a reason for this, though it seems so much simpler to me.

 

[Gardan]

Jyde

Gardan, thank you for that link. I will check it out.
I have tried the IB demo account, though a bit confusing to the rookie, it is a good way to get more routined.

On a littel aside, for most of the brokers I have found they are US based and want money wired. Are the no European ones that can just credit and debit a credit card? Maybe there is a reason for this, though it seems so much simpler to me.

If the question above is for me, sorry , can't help, sure someone more experienced may pick up on it though.