Financial traders and brokers network
Electronic or scripless tradingsometimes called e-trading or paperless trading is a method of trading securities such as stocksand bondsforeign exchange or financial derivatives electronically.
Information technology is used to bring together buyers and sellers through an electronic trading platform and network to create virtual market places. Electronic trading is financial traders and brokers network contrast to older floor trading and phone trading and has a number of advantages, but glitches and cancelled trades do still occur.
For many years stock exchanges were physical locations where buyers and sellers met and negotiated. Exchange trading would typically happen on the floor of an exchange, where traders in brightly colored jackets to identify which firm they worked for would shout and gesticulate financial traders and brokers network one another — a process known as open outcry or pit trading the exchange floors were often pit-shaped — circular, sloping downwards to the centre, so that the traders could see one another.
With the improvement in communications technology in the late 20th century, the need for a physical location became less important and traders started to transact from remote locations in what became known as electronic trading. Set up inNASDAQ was the world's first electronic stock market, though it originally operated as an electronic bulletin board [ citation needed ]rather than offering straight-through processing STP.
By investment firms on both the buy side and sell side were increasing their spending on technology for electronic trading. Traders also increasingly started to rely on algorithms to analyze market conditions and then execute their orders automatically. The move to electronic trading compared to floor trading continued to increase with many of the major exchanges around the world moving from floor trading to completely electronic trading.
While the majority of retail trading in the United States happens over the Internet, retail trading volumes are dwarfed by institutional, inter-dealer and exchange trading. However, in developing economies, especially in Asia, retail trading constitutes a significant portion of overall trading volume .
For instruments which are not exchange-traded e. US treasury bondsthe inter-dealer market substitutes for the exchange. This is where dealers trade directly with one another or through inter-dealer brokers i. They acted as middle-men between dealers such as investment banks. This type of trading traditionally took place over the phone but brokers moved to offering electronic trading services instead.
Similarly, B2C trading traditionally happened over the phone and, while some still does, more brokers are allowing their clients to place orders using electronic systems.
Many retail or "discount" brokers e. Charles SchwabE-Trade went online during the late s and most retail stock-broking probably takes place over the web now. Larger institutional clients, however, will generally place electronic orders via proprietary electronic trading platforms such as Bloomberg TerminalReuters XtraThomson Reuters EikonBondsPro, Thomson TradeWeb or CanDeal which connect institutional clients to several dealersor using their brokers' proprietary software.
For stock trading, the process of connecting counterparties through electronic trading is supported by the Financial Information eXchange FIX Protocol. Used by the vast majority of exchanges and traders, the FIX Protocol is the industry standard for pre-trade messaging and trade execution.
While the FIX Protocol was developed for trading stocks, it has been further financial traders and brokers network to accommodate commodities,  foreign exchange,  derivatives,  and fixed income  trading. For retail investors, financial services on the web offer great benefits.
The primary benefit is the reduced cost of transactions for all concerned as well as the ease and the convenience. Web -driven financial transactions bypass traditional hurdles such as logistics. Exchanges typically develop their own systems sometimes referred to as matching enginesalthough sometimes an exchange will use another exchange's technology e. Exchanges and ECNs generally offer two methods of accessing their financial traders and brokers network —.
From an infrastructure point of view, most exchanges will provide "gateways" which sit on a company's network, acting in a manner similar to a proxyconnecting back to the exchange's central system. Many brokers develop their own systems, although there are some third-party solutions providers specializing in this area.
Some banks will develop their own electronic trading systems in-house, but this can be costly, especially when they need to connect to many exchanges, ECNs and brokers. There are a number of companies offering solutions in this area. Many types of algorithmic or automated trading activities can be described as high-frequency trading HFTwhich is a specialized form of algorithmic trading characterized by high turnover and high order-to-trade ratios. From Wikipedia, the free encyclopedia.
Not to be confused with E-Trade. This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources.
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Direct market access DMA is a term used in financial markets to describe electronic trading facilities that give investors wishing to trade in financial instruments a way to interact with the order book of an exchange.
Normally, trading on the order book is restricted to broker-dealers and market making firms that are members of the exchange. Using DMA, investment companies also known as buy side firms and other private traders use the information technology infrastructure of financial traders and brokers network side firms such as investment banks and the market access that those firms possess, but control the way a trading transaction is managed themselves rather than passing the order over to the broker's own in-house traders for execution.
Today, DMA is often combined with algorithmic trading giving access to many different trading strategies. Certain forms of DMA, most notably "sponsored access," have raised substantial regulatory concerns because of the possibility of a malfunction by an investor to cause widespread market disruption. As financial markets moved on from traditional open outcry trading on exchange trading floors towards decentralised electronic, screen-based trading and information technology improved, the opportunity for investors and other buy side traders to trade for themselves rather than handing orders over to brokers for execution began to emerge.
The implementation of the FIX protocol gave market participants the ability to route orders electronically to execution desks.
Advances in the technology enabled more detailed instructions to be submitted electronically with the underlying order. The logical conclusion to this, enabling investors to work their own orders directly on the order book without recourse to market makerswas first facilitated by electronic communication networks such as Instinet.
Recognising the threat to their own businesses, investment banks began acquiring these companies e. Most major sell-side brokers now provide DMA services to their clients alongside their traditional 'worked' orders and algorithmic trading solutions giving access to many different trading strategies. There are several motivations for why a financial traders and brokers network may choose to use DMA rather than alternative forms of order placement:. Advanced financial traders and brokers network platforms and market gateways are essential to financial traders and brokers network practice of high-frequency trading.
Order flow can be routed directly to the line handler where it undergoes a strict set of Risk Filters before hitting the execution venue s. The race for ultra-low latency direct market access is a hot topic amongst high frequency traders, Brokers and technology vendors such as Artha Financial TechnologyFusion Systems Raptor, Ullink or Fidessa.
One area in which financial traders and brokers network systems can contribute to best execution is with functionality such as direct strategy access DSA  and Smart Order Router.
Foreign exchange direct market access FX DMA refers to electronic facilities that match foreign exchange orders from individual investors and buy-side firms with bank market maker prices. FX DMA infrastructures, provided by independent FX agency desks such as DMALINKconsist of a front-end, API or FIX trading interfaces that disseminate price and available quantity data from multiple bank contributors and enables buy-side traders, both institutions in the interbank market and individuals trading retail forex in a low latency environment.
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