How Technology Has Revolutionised the Trading Markets
Nowadays, a trade can be completed in as little as sixteen microseconds. For context, it takes the human eye 18.75 seconds longer to blink just once. This shows us just how far technology has come over the past decade. However, as well as the physical execution of the trade itself becoming quicker, we have seen many other instances where technology has revolutionised the trading markets. Here, we take a look at a few examples.
Markets are now Accessible Beyond Hollywood
For many, markets still appear to almost exclusively exist in large budget Hollywood films. From the Wolf of Wall Street to The Big Short, the lifestyle of rich, illustrious traders has always been the domain of Hollywood. These traders, as the films tell us, are white, middle or upper class, and cash happy.
If the film doesn’t revolve around high flying traders, it instead revolves the bank clerks and people who work on Wall Street. These are people working on behalf of traders, buying and selling on command, punching orders into screens.
However, these are now thoroughly outdated images. Although the New York Stock Exchange likes to keep images of its trading floor on national television for reasons of exposure, very few trades actually happen in the public eye. Most are now carried out on computer systems from home, never seen by anyone except the people directly involved in the trade.
In the forex market, for example, $5.3 trillion is traded every single day. Many members of the general public do not know this, thinking that it’s impossible that such a small number of people on the trading floor can service such revenue. However, technology now means that trading often takes place through fibre-optic cables, carrying messages between banks and firms, completing trades without the eyes of the world in a matter of milliseconds. Truly, there has been a trading revolution, and much of it is underground.
Technology has Increased Market Volatility
Due to the fact that more trades can be placed faster than ever before, market volatility has also increased. In fast than the blink of an eye, you can buy or sell shares in a company, with this immediately registering on the system.
Ease of access means that more people are trading than ever before. As many of these people are untrained in the markets, they rely on hints and tips from experienced traders. As such, one trusted trader posting a tip can lead to a “herd mentality” developing, as the information is passed among friends to maximise profit, thus causing a chain reaction that sparks volatility as price swings increase.
Enhanced Regulation Improves Competition
Although the markets themselves and the speed that they operate has changed, so has the regulation that underpins them. This greater competition is fantastic for the individual trader, and it means that rival trading venues can offer better deals. With high competition, individual traders get a better and cheaper product. For example, in the US, there is now 14 public exchanges, 30 ‘dark pools’ and 200 broker-dealer networks. This means that now only handles 26% of volume in NYSE-listed stocks, for example.
Short Term Trading Has Become the Norm
The ease of access to the trading and the rise in the number of novice traders has also led to an increase in the popularity of short term forms of trading, particularly CFDs.
The impact of technology facilitates the need of younger generations to have everything right away, and it has led to a number of new product offerings such as Contracts for Difference (CFDs) and spread betting. With these, there’s no need to hold a position long term, and you could make money in a matter of minutes… if not seconds. Plus, they’re all made possible by the quick execution technology mentioned earlier.
However, Technology has Blurred the Lines Between Trading and Gambling
Having more people involved in trading on a daily basis is undoubtedly incredibly good for the industry. However, the number of young people joining the industry has meant that the lines between trading and gambling have become blurred, with many youngsters trading on the margin to begin with. This is at high risk and can mean huge losses from the outset. Some do not understand the severity of this and the amount of money they can lose.
Whereas trading used to be mainly focused on chart analysis, technical indicators and fundamental analysis, many people are now simply looking to make money quickly. This is a very dangerous way of entering the markets as, without the proper education, many of the decisions could lead to huge losses.
However, the rise in technology means that educating yourself is simpler than ever before. For example, if you trade with a reputable broker such as ETX Capital, then you’ll have free education resources at your fingertips. Plus, there’s also access to features such as demo accounts, so you can trial your trading strategies and chart reading skills before you enter the markets.
Security Must Be Boosted
However, this increased exposure in the forex markets also means that the markets are more prone to attack than they ever have been previously and, as a result, security simply must be boosted.
At present, although many servers, brokers and platforms are secured and optimised for security, others are still open to manipulation and exploitation. This isn’t necessarily a new problem, and the rise of technology in an industry always leads to inevitable need to boost security.
The sheer volume of money being traded online now means that the markets are more of a target than ever before, and now that the technological revolution is in full flow, security being properly boosted looks set to be the next step.
To conclude, technology has completely revolutionised the trading markets, meaning that more people have access to trading than ever before. This has both positives and negatives, but trading has now become a popular career for many who want to work from home and, if you follow the right tips, you can earn money.