Skip to content

Direct Market Access (DMA) 101

Direct Market Access (DMA) allows traders to send orders directly to an exchange without needing an intermediary broker to re-enter the order manually. It is essential for firms aiming for speed, control, and competitive advantage in modern markets.

This guide covers what you need to establish your own DMA setup.

What You Need for Direct Market Access

Here is the general list of what is typically required:

1. Co-location

To achieve ultra-low latency, your servers must be physically close to the exchange's matching engine.

  • Rent a rack or partial rack at the exchange's co-location facility.
  • Hardware setup typically includes high-performance servers, low-latency network cards (NICs), and redundant power and connectivity.

Co-location significantly reduces the time it takes for your orders to reach the exchange compared to regular internet connections.

2. Software: Feed Handler and Execution Gateway

You will need specialized software to interact with the exchange:

  • Feed Handler

    • Receives real-time market data (order book updates, trades).
    • Normalizes and parses the data into a format your trading algorithms can use quickly.

  • Execution Gateway

    • Sends orders (new, modify, cancel) directly to the exchange.
    • Receives execution reports (fills, rejects, cancels) and updates your order state.
    • Manages a basic Order Manager to track open, filled, and cancelled orders.
    • Includes a Pre-Trade Risk System to perform risk checks before orders are transmitted to the exchange.

Both components must be highly optimized for low-latency and reliability.

3. Market Data Licenses

You need proper legal rights to receive and process market data:

  • Non-Display Use License (if using the data in an algorithm, not displaying it to a human)
  • Display Device License (if displaying data visually on a screen for human use)

Most major exchanges require that firms have signed licensing agreements and pay associated fees before accessing real-time feeds.

4. Clearing Firm Relationship

You must have a clearing firm to:

  • Sponsor your exchange connections.
  • Handle risk checks before orders are allowed to hit the market ("pre-trade risk checks").
  • Manage trade settlement and margin requirements.

Many exchanges will not let you send orders directly unless your clearing firm authorizes you (often called "sponsoring a session").

5. Exchange Membership (Optional but Beneficial)

  • Some firms choose to become exchange members to save on transaction fees.
  • Membership may also give you direct access to additional trading tools and faster order handling.

Final Thoughts

Building a true DMA setup requires significant technical expertise, regulatory compliance, and operational discipline.It is not simply about speed — it is about designing a stable, reliable infrastructure that can handle the realities of live trading.

When done properly, DMA provides your strategies with:

  • Faster market access
  • Full control over order routing and risk
  • A competitive edge over firms relying on third-party brokers

While the initial effort and investment are significant, the long-term benefits of precision, reliability, and scalability can make it an essential foundation for serious trading operations.