What is the Future of Online Trading?
Since the first stock traded hands on the docks in the early 1600’s with the East India Trading Company to today’s simplicity of point-and-click transactions, technology has been a key factor in making capitalism the standard economic model of the world. With the advent of digital trading systems known as electronic communications networks (ECN), brokerage houses were able to monitor stock quotes and broadcast them to investors, but the real breakthrough came with the proliferation of the internet and the unparalleled impact it has had on global financial markets. Now that stocks can be traded accurately and instantaneously, the future of online trading holds some interesting prospects.
The Impact on the Consumer
Even in the last decade we’ve seen tremendous growth in mobile data streaming and the portable abilities it gives consumers. Internet browsing is already available on portable devices and the trend is likely to continue on this path. Look for more streamlined and comprehensive trading platforms that are accessible on smartphones, tablets, and other similar devices. Expect downloadable trading applications to replace desktop software used to analyze trends and make investment decisions.
The advancement of technology also means that new financial instruments will be created. It’s already happened with assets like collateralized debt obligations (CDO’s) and credit default swaps (CDS’s). With new trading systems come new asset classes which will broaden investor portfolios and add complexity to investment strategies. Assets like currency pairs, commodities, options, and debt products will be packaged together in more creative ways giving traditional investors access to a broader investment base from which to choose.
What it Means for Institutional Investors
For institutional firms like investment banks and asset management companies, technology has paved the way for new types of trading strategies like high-frequency trading (HFT). Using predetermined algorithms to decipher market patterns and take advantage of pricing inefficiencies, entire companies known as “quant” funds are able to profit from tiny discrepancies that wouldn’t be possible for individual traders to spot. Quantum computing will become ever-more present in institutional firms to handle the additional computational expectations and encryptions. Expect to see more of these types of companies handling money and replacing traditional models like “buy-and hold” investing.
Globalization means that companies don’t exist in domestic vacuum anymore. The price of doing business is slowly melding into a worldwide equilibrium which is already having an impact on things like currency valuations and labor costs. The influx of investors in the global marketplace will add more complexity into valuation models and financial analysis making computer-based trading more prevalent. Expect to see more foreign companies blended into everyday portfolios and increased volatility in the overall financial system.