For close to 200 years, the process of selling and buying stocks didn’t change much. It typically took place in some physical location during a specific period of time, better known as trading hours. Today, it is hard to imagine a time when the stock exchange was ever ‘closed for business’ or even limited to one particular space. The invention of computers and technology has made it so that most stock trading is automated, occurring 24 hours a day, 7 days a week, and 365 days a year from just about anywhere in the world. To this day, the technology used for stock trading is rapidly changing and developing, making for easier and faster exchanges of information between buyers and sellers. The following are examples of technology that have changed the future of investing.
Bringing new efficiencies to the market is nothing new, but the speed at which the changes are occurring these days is unprecedented. The Internet has caused major changes in the behaviour and expectations of investors, as they now want the instantaneous trading and access-to-information capabilities that only the new online technologies can provide. As soon as the online technologies appeared and people learned how to use them, there was no going back to the old-fashioned ways of trading. The only possible outcome of this efficient trading is the streamlining of existing technology to continue the unprecedented increases of daily transactions that are now possible. Investors, traders and regulators must now receive a crash course in the use of electronic commerce programs such as algorithmic trading, hybrid markets, electronic communication networks, and many more to come.
Electronic Communications Networks
The largest impact for investors has come in the form of electronic communications networks (ECNs) and electronic stock exchanges. The ECN is the automated system that is responsible for eliminating the need for trading hours by facilitating trades electronically from a stock exchange. ECNs typically act as passive order-matching machines that match the buy and sell orders of similar prices, eliminating the need for specialists or market makers to coordinate trades. This system is attracting a rapidly rising trading volume and is accountable for more than half of over-the-counter trades.
Business in Cyberspace
To meet the demands for faster trading and access to investment information, more advanced electronic trading venues will be continuously developed to meet the growing needs of investors. Although large or complex orders continue to be routed through floor traders, brokers can now buy or sell shares electronically in quantities of up to one million shares. These days these types of orders generally only take about a second to execute and they can happen from any place that has access to the internet. When business happens in cyberspace, investors are able to clearly see all of their options, compare prices and buy or sell almost instantaneously.
The Age of Information
Technology has not only revolutionised the efficiency of buying and selling stocks, it has also made it easier for investors to make sound investment decisions. New trading systems continue to be developed where investors have access to quantitative models that aim to predict the movement of the markets. These systems are fully automated and can both identify trading opportunities and automatically place the trades needed to take advantage of a good situation. Investors can now look to software to help them analyse the stats and trends that contribute to good investment decisions.