What is Direct Access?
Direct Access describes a system or trading platform that allows the user to send his or her orders to buy or sell securities directly to the exchange or market where it is listed and traded by the members of that exchange or market.
Contrary to popular belief, most UK Equity trades executed for retail share dealers do not go anywhere near the London Stock Exchange's systems. Instead they go to RSPs (Retail Service Providers). RSPs are typically Investment Banks or Brokerage Houses that provide electronic quotes to you via your online broker.
These quotes are typically small in terms of the number of shares that may be traded, and are valid for a few seconds. This process defines a Quote-Driven market.
Here is an example of a quote driven trade where the trader gets a quote to buy through his broker from several RSPs:
The quote trader is shown the best offer for 500 shares at 654, and is told by his broker (in attempt to justify their commission) how amazingly lucky he is to get "Price Improvement" of 0.5 pence per share. The quote trader smiles naively at the £2.50 he thinks he's just saved.
This contrasts to the Institutional markets, which are typically Order-Driven. In an Order-Driven market, clients submit orders to buy or sell instruments at specific prices and sizes. These orders, also referred to as limit orders, are sent to a central marketplace. This central marketplace is frequently referred to as the Order Book.
It is on the Order Book that buyers and sellers orders are matched directly. Most Exchanges and Markets operate their Order Books under a Price/Time rule, which means that the highest and earliest bidder will buy from the lowest and earliest seller.
Here is an example of an Order Driven trade:
Top 3 Reasons to use iDealing Direct Access
Spreads Work for You, Not Against You
The wider the spread the greater your advantage over the "Poor Quoters". Substantial improvements to execution often result from being able to buy at the Bid Price, or sell at the Offer Price.
You aren't restricted to trading within the small size restrictions that are often imposed on quote trades.
Before the market Opening, after the Closing, and sometimes intra-day, the London Stock Exchange permits Direct Access participants to take part in the Auction. Your Bids/Offers rank alongside those of Investment Banks and Brokerage Houses.
How to Get Direct Access?
Step 1: Register for an iDealing Account if you don't already have one.
Step 2: Apply for categorisation as a Professional Client.
Direct Access to the LSE is only available to firms, and individuals with sufficient experience to be categorised as a Professional Client. To assess your eligibility for this categorisation, we need to have received a "Request for Professional Client categorisation" form, which is available in PDF format on the Forms section of our website.
Step 3: Start Trading Direct! If we can accept your categorisation request, we will add the LSE to your list of accessible markets, and you will be able to place direct orders. Should you have any questions regarding Direct Access, email email@example.com.
iDealing's Guide to Direct Access, LSE
iDealing now offers a Direct Access platform that routes your orders directly to the order books of the London Stock Exchange. Recognised collectively on our platform as "LSE", these are comprised of two main order books - "SETS" and "SETSmm". iDealers with Direct Access can also participate with LSE member firms in pre-market and post-market auctions.
An Expert's Comment
"For the professional stock trader and active investor, Direct Access is now the benchmark by which all new trading platforms are judged. Trading on other people's prices on a take it or leave it basis no longer necessarily meets the expectations of the experienced trader and active investor. I am delighted to see iDealing deliver the first Direct Access stock-trading platform for the UK retail market. iDealing's Direct Access is a welcome supplement to their well-known quote trading facility and streaming data."