The stock market, just like other markets and realms, has been vastly influenced by technology. Recent years have mainly been all about technology and its benefits. Considering how much technology is entrenched in the day-to-day aspects of the trade, it is almost inconceivable to think of how the market was a decade ago. The kind of efficiency that has been brought by technology has not only made the market more efficient, but it has also helped it grow by leaps and bounds. If the technology were to be removed today, the losses that would be experienced in the market would be colossal. But how exactly is technology impacting the daily activities in the stock market? Let us analyze the critical ways that tech is shaping the market.
Normalization of Electronic Trading
The first and most obvious impact of tech on the stock market can be seen in the electronic trading realm. This specific segment of the market is now the largest, and this was not the case only a few decades ago.
Trading has moved to the digital world in phases, and today, the bulk majority of tasks at the stock market are done online. As reported by Admiral Markets, it will only take a few years now before the whole market is electronic. The change from traditional stock trading to electronic has been a gradual process. Before the advent of computers, the only aspects of the market that were electronic were the calculators used and the telephones. Nowadays, though, data analysis, communication, and transactions are all done with computers. The current trend has indeed been automation. The concept of algorithm trading is just taking root, which can only result in the deeper integration of electronic processes in the stock market.
Another way in which technology has changed the stock market is through the introduction of high-frequency trading. The speed that comes with the use of computers has made it possible to carry out processes of trade in a short time. In relative terms, stock trading today can be fifty and even one-hundred times faster than three decades ago. The obvious impact of technology has been that a more significant number of people are now trading on a day-to-day basis. These people, who initiate and close several trades within a day, are known as day traders.
Day trading is not a phenomenon that is only limited to individuals, though. Even large companies and institutions have fully embraced day trading. This means that the modern stock market is characterized by several high-volume trades made in high frequencies. The market dynamics that come as a result of this are thus profound. It is nowadays common to see a market that is full of excitement and vibrancy as a result of this high-frequency trading.
The market has also become a much more credible place due to technology. Not only has technology brought about increased security, but it has also made transactions much more practical. It is now possible to see the details of the market in a real-time manner. This has far-reaching impacts on investment.
Investors make their moves based on the information that is available to them. Having quick information about the market thus makes the market very accessible to all kinds of traders. The fact that machines handle the transactions instead of people also makes the market great for investors who want to make decisions quickly. As opposed to the past, where actual people handled investors’ assets, the current market is almost error-free, and this has raised the standards of the market.
Sporadic shifts in the market
Not every aspect of tech has been good for the market, though. There are many instances where stock movements are triggered by false signals. Considering how quickly information spreads, there have been many occasions where misleading information has resulted in shocks across the market. Automating certain aspects of the market has also left the market’s direction in the hands of machines. In instances where confident investors use technology to make trades, there has been a lack of trading on the basis of the market direction.
Most automated trades are timed, and this removes the essence of market signals. Such trades have been a cause of panic and sudden shifts in the stock market. Overall, technology has also been used to correct some of these issues promptly.