Direct Market Access (DMA) means that when you place a trade online, your order is sent directly to the stock exchange for execution. You may be surprised to discover that this is not how online trading always works, but in fact DMA has only been available for retail investors for a relatively short time. In many markets, the majority of brokers still don’t use it.
In the traditional way of placing a trade, you give an order to your broker by telephone or online and your broker then requests a quote for that order from a market maker. A market maker is a company that is equally ready to buy or sell a stock; it quotes both a bid price and an offer price at all times and hope to make a profit from the difference between the two. This difference is known as the bid/offer spread or bid/ask spread.
Brokers usually poll several market makers and present the best quote to you. That quote is then good for a fixed period of time – say 10 seconds – after which it expires.
This is known as a quote-driven market. You’re given a quote and decide whether to accept it. Historically, all markets worked like this, with the price you get for any stock ultimately coming down to what the market makers were prepared to offer. But technology changed all that – and even small investors can now see the difference.