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Tech Trades: How Technology has Changed the Stock Market
We’re all aware of just how drastically technology has changed the way we communicate, learn, socialize, and do pretty much everything else in-between. For better or for worse, technology’s steady march onward has forced us to keep up with it, or risk being left behind.
Well, certain industries felt the impact of technological advancements more keenly than others, with the stock market being a prime example. Back in the day, you would have traders shouting across the trading floor as they debated the merits of some new bit of unverifiable information that had trickled down the rumor mill to the floor of the exchange. Trading discipline was perhaps easier to maintain without the constant overload of new input we get living in the information age as we do, but who’s to say that’s a good thing or not?
Let’s take a closer look at some of the ways technological advancements had an impact on the stock exchange.
Information Access
Only a few decades ago, events taking place across the world would take great lengths of time, entire days in some instances, before reaching stock market players whose holdings might have been affected by the news. This obviously meant that those with better, faster sources of information had a definite advantage over the competition.
With the advent of the information age, instant, 24 hour news cycle made possible by the internet and cable news networks have made the playing field a lot more equal among traders, shareholders, and advisers.
Trading Frequencies
Transactions on the stock exchange used to be infrequent actions on the part of traders, considering the fact that the values of stocks rarely fluctuated the way they do today. You might have had a trader making two or three transactions on a particular holding in a year, if at all.
Things have changed nowadays, whereby you might find entire buy-and-sell cycles being executed within the span of a day, an hour, or even a minute. Institutional traders might even initiate the trading of millions of shares within a moment. The day trading phenomenon is a very recent evolution in the stock market field only made possible by the introduction of technological enablers.
Perhaps the biggest downsides of this capability is the fact that players who lack proper trading discipline place themselves at risk of losing their stakes through reckless execution of their whims. Back then you had the time to properly think through whatever move you wanted to make, which can seem like an unnecessary waste of time in today’s fast-paced trading environment.
Trade Execution
One of the most fascinating ways in which technology affects our lives in so many areas is by increasing the speed at which we can obtain tangible, accurate results for processes that used to take much longer previously. The computer systems and gadgets that we make use of today have the ability to return the results of buy or sell transactions to us that it would seem to be happening in real time.
The fact that most trading institutions and exchanges all over the world will take up to three days to process transaction requests does not indicate the speed of the systems in use – these complete orders in milliseconds – the delay is an intentional safety measure to ensure both parties are satisfied with the trade conditions and have received their dues before finalization as well as a helpful aid encouraging trading discipline.
The occurrence of book-keeping errors, which was a real concern back in the day when physical ledgers were made use of has virtually been done away with. Cyber-security and fail-safe features are in place to protect trading systems against malicious attacks, fraud, as well as potential system failures.
Automated Trading
Today, you will find plenty of large-scale traders and even some smaller day traders implementing the use of automated trading systems to execute their strategic trading plans. They might, for instance, program their system to sell off a stock at a particular time or date to come, depending on what the trader’s objectives and thoughts on future conditions are.
A real downside to such systems is the effect such actions might have on fellow traders who are overly-excitable or who lack the trading discipline to keep their cool. Seeing sudden bulk purchases or sell-offs of large stock volumes without any noticeable news events might scare them into selling or entice them into buying unwisely.
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