Direct-Access Broker

A direct-access broker is a stockbroker that concentrates on speed and order execution — unlike a full-service broker that focuses on investment research and advice. Direct-access brokers usually use complicated computer software that allows clients to trade directly with an exchange or with other individuals via electronic communication networks (ECN).

Direct-access brokers have become very popular among active traders because of their speedy transaction times, but other services such as streaming quotes, interactive charts, Level II Nasdaq quotes and other real-time features have also contributed to this success. These brokers have cut down 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.

Conventional online brokers generally direct customer trade orders to a centralized trading desk that then routes to the firm’s own market makers or other pre-determined liquidity providers through pre-negotiated order flow arrangements. These platforms tend to push research and fundamental analysis functions over pure execution services. These brokers cater to self-directed investors and retail swing traders.

There are advantages and disadvantages along the broker spectrum of full service to hyper low-cost options. Sophisticated institutional investors with in-house research teams might not want to pay for full-service execution which includes research and trading ideas. However, to capitalize on proprietary research and ideas, at times, they will seek and pay a premium for rapid trade execution. In contrast, buy-and-hold long-term investors do not require immediate execution, so paying a premium wouldn't make a great deal of sense. But research and advice which can be costly to assemble themselves can be a value-add service.

Advancements in global capital markets, as well as information technologies, continue to drive down the costs for financial market participants — in many ways, the traditional lines between full-service and online discount brokerages get ever blurrier.