We all know how big of an impact technology has on our lives today. We see examples of it every day when we do things we couldn’t have been doing just a couple of years ago without a second thought – when we order up an Uber to get us where we need to be, watch a movie on our tablet, pay for lunch using our phone, and a hundred other little things.
What we might not be aware of is just how much technology has transformed the way business is done all over the world. The world of securities trading is a notable example of this transformation, and can serve as a good example of how deep and wide the changes are. We’re far removed from the days when we would see traders shouting over each other on the ticker-tape strewn floor of the New York Stock Exchange as they place their trades.
Let’s take a look at just how much the stock exchange has been transformed by the advancement of technology.
Trading at the Speed of Thought
Transactions that would take a full working day to execute are now being accomplished in a matter of seconds due to the computerization of the processes. Buy and sell orders being placed in separate corners of the globe can be correlated and balanced out in virtual real-time and with high fidelity. The chances of errors taking place has been minimized so drastically as to be almost nil, boosting investor confidence in the systems. Even in cases where transactions are held in abeyance for a couple of days before being confirmed, this is more a matter of tradition than a technological limitation. The money has already been transferred – they just let you wait it out a little bit to give involved parties a sense of increased security and perhaps a chance to reverse a flawed transaction in the extremely rare case.
Access to Information
The time we live in isn’t referred to as the Information Age for nothing. We walk around with virtually all the world’s written knowledge accessible with a few taps of our fingertips, and this is the first time in human history this has been possible. With the internet, any investor can have instantaneous access to stock prices, company reports, and current events impacting their holding just as soon as they occur. Everyone knows what’s happening just as soon as it happens in the age of the 24-hour news cycle. It used to be that the day’s stock prices were a matter of waiting for the daily papers, but that has been banished to history.
Increased Trading Volumes
Day trading is a very recent phenomenon. It wasn’t possible to execute complete buy and sell cycles within a single trading day before the advent of electronic trading. Now you can do it in mere minutes. The real impact of this development begins to be fully felt when we consider the activities of institutional investors who are capable of initiating trades involving millions of shares at a moment’s notice. These kinds of moves are capable of creating cascade effects, whereby other traders respond to the big action by interpreting a trend in it, resulting in Bull and Bear runs on stocks, sometimes with no real economic logic behind them.
The prevalence of automated trading programs further exacerbates this risk, for example where a program is set to sell off a stock should its price fall to a certain level – the computer will not differentiate between a false alarm and a legitimate situation, potentially causing widespread stock value erosion and investor losses.
By its very nature, technology is not very kind to old, established systems. It aims to make them obsolete and replaces them with more efficient solutions wherever it can . This is good news in terms of productivity, but it can spell disaster for those holding stock in companies being overtaken by technology.
A new application can be launched tomorrow that makes a previously successful business completely irrelevant, as Uber is currently doing with Taxi organizations around the world. Stock market players have had to consider their investments in light of potential new technologies when building their portfolios to avoid being caught unawares by new innovations.