Advantages and Disadvantages of Direct Access Trading or DAT

Thursday, May 10, 2007

Advantages and Disadvantages of DAT

Direct access trading or DAT (also known as EDAT) have revolutionized the way of trading. Today there are many traders who solely depend on DAT systems to execute their traders. Direct access trading has both advantages and disadvantages over online trading and traditional trading. They are discussed below.

Advantages of DAT

The process is fully automated.
Direct control over investments.
Fastest trade execution with less than a second delay.
Access to Level 2 or level 3 (real-time) market data.
Broker independent, needs no assistance to execute trades.
Most advanced trading system.
Cheaper commission rates.
Choice to route orders to market maker or specialist.
Choice of ECN (Electronic Communication Network).
Enhanced slippage control.
Excellent for day traders and other active traders.
Usually high leverages.

Disadvantages of DAT

Traders have to fulfill activity and account minimums.
Involves monthly platform usage fee.
May involve inactivity fee, not suitable for part-time traders.
Margin trading using high leverages can magnify your loss.
Not suitable for position traders or long-term investors.
Traders are fully responsible for their decisions; not suitable for novice traders.
The trading systems, charges and the service vary greatly with brokers and account sizes.