High-Tech Hustle: How Technology has Changed the Stock Market
We have come a long way from the days when traders would yell out their trades over each other’s voices on the stock exchange floors, but many of us don’t realize the true extent of technology’s impact on the stock markets of the world and how technology has changed the stock market. High-tech trading practices have brought a whole new level of efficiency, capacity, and effectiveness. Let’s explore some of the ways modern technology has made an impact on the trading world.
The rate at which traders could carry out their selling and buying used to be pegged on how fast their transactions could be recorded, broadcast on the trading room floors. In the age of the computer, trading takes place in split seconds. You could place an order on your holding of choice and have it ratified worldwide in the wink of an eye. While it’s true that there are still vestiges of the old days, such as the three-day waiting period for stock purchases, you can’t compare the conditions traders work in today to what they were in the past.
Aside from the frequency of trades witnessed in this day and age, the volume of trade that takes place today has increased as well. High-frequency trading has been made possible with the advent of electronic trading facilities. With this capacity, people have the ability to carry out complete buying and selling cycles on the same holding within a single day, sometimes within minutes. The commonly used term used for this increased ability is day trading’, in reference to the exceptionally short turnaround times made possible with technology.
The impact of the day trading age has been a game changer in the trading world. While individual day traders may not have much of an impact on the stock valuations of their interest, there is massive influence wielded by large institutional investors, who are capable of trading millions of dollars’ worth of shares at a single instant. When these types of transactions take place, as any forex expert advisor will tell you, the market will definitely experience a shock. This has the potential to morph into a bear or bull run depending on the nature of the transaction. Back when trading was being carried out at a more sedate pace, we didn’t have to worry about such possibilities.
When it comes to the stock market, information is vital. In many cases, how soon you receive pertinent information regarding a stock holding will determine whether you incur a loss or avail yourself of a profitable opportunity. Investors operating today have access to information on a level that hasn’t been seen before. With the internet, traders across the globe may view stock prices, company reports, and all types of breaking news that may have a bearing on the state of their holdings. It’s never been a better time to be a trader. The point to note, however, is that everyone enjoys these same privileges, so the playing field, though smoothened, remains as level as it ever was.
As they say, there is a flip side to every coin. While technology has had many positive impacts on the stock trading world, it has to be acknowledged that it does have its downsides. There are various institutional investors in the stock market that utilize automated trading technology to handle their operations. These would include the likes of hedge funds, mutual funds, pension funds and the like.
Now, the danger here comes in due to the fact that automated actions on the marketplace may occasionally cause shocks due to their unexpected or seemingly irrational nature. When an apparently stable stock holding is suddenly sold off by a major investor, the market is bound to sense that something may be in the offing, and this is precisely the type of situation that develops into bear runs.
Aside from the dangers posed by pre-programmed buying and selling practice, we are also faced with the reality of system-based errors. Machines are not immune to failure as a rule, and the machines relied upon by traders are no exception by any means. Programming bugs and glitches, in addition to possible hardware complications, may come to result in precipitate selling or buying actions.