Technology has reshaped our world and transformed virtually every industry – including investing. Today’s investors have access to an endless amount of information and trading tools that help them make smart investments.
Here are 11 ways technology has transformed the investing world.
1. Electronic Stock Exchanges
Prior to computers, trading floors were crowded, loud and fast-paced. Floor traders shouted their offers and acceptance of offers.
In 1971, the first-ever electronic stock market was launched by NASDAQ. For the first time in history, traders were able to post bids and offers on a digital platform. In 1984, access expanded. NASDAQ and the NYSE launched the Small Order Execution System and SuperDot respectively. The move allowed small investors to execute lower volume trades through digital channels.
2. Online Trading
The invention of the electronic stock exchange eliminated the need for floor traders, but online trading platforms changed the broker’s role.
Before online trading, investors had to make calls to place trades with a financial adviser or a broker.
But in the late 1980s, brokerages were developing online platforms that linked investors with current stock price information and allowed them to facilitate trades.
3. Personal Finance Apps
The introduction of personal finance apps like LearnVest, Quicken and Mint have changed the way people budget and track their investments.
With the help of simple, user-friendly apps, users can manage, organize and view their investments. That means everyday people can keep track of their portfolio without having to rely on an adviser.
4. Big Data
Financial markets are becoming increasingly reliant on big data, particularly in the management and regulations departments.
The SEC, for example, uses data analytics to find illegal trading activity and monitor the market. Hedge funds, retail traders and big banks use big data to manage portfolios, measure market sentiment and create predictive analytics.
5. Social Media
For investors, social media is an extremely valuable tool, offering vast amounts of data. Social networks can be used to perform sentiment analysis and even track the impact of news on markets around the world.
6. Algorithms
Online trading platforms and other financial market technologies rely on algorithms. Algorithmic trading uses programmatic rules to analyze market volatility, trading volume and timing.
These algorithms work at quick speeds to gives investors the power to execute buy and sell orders with less bias and at a quicker pace than human operators.
In other words, algorithms allow investors to make trades using unbiased facts.
7. High-Frequency Trading
High-frequency trading (HFT) is a relatively new development, but it allows for automated trading using advanced algorithms and at near-instantaneous speeds.
In 2000, HFT only accounted for 10% of trading. Today, it accounts for about 52% of trading volume. But it hasn’t always been smooth sailing for HFT. In 2010, the “flash crash” caused a $4 billion computer-driven sell-off that wiped out $1 trillion of value.
8. Robo-Advisors
Driven by algorithms, robo-advisors serve as financial planning tools that require only minimal human interaction.
Robo-advisors were first introduced in 2009. Today, Betterment and Wealthfront are the industry leaders, but there are more than 100 robo-advisers totaling $224 billion in assets under management.
9. Cryptocurrencies
Love them or loathe them, cryptocurrencies have made waves in recent years. In fact, cryptocurrencies were one of the biggest financial stories of 2017.
Bitcoin saw incredible growth in 2017, soaring to $9,500 per coin in November – a 1,300% one-year increase.
10. Initial Coin Offerings
Cryptocurrencies have given rise to initial coin offerings, or ICOs. ICOs have allowed venture capital firms, entrepreneurs and companies to raise capital.
An ICO is similar to an IPO in that it allows ventures to raise capital through public investors.
So far this year, ICOs have raised $2 billion. But lack of SEC regulation has many investors rightfully concerned. There’s a rise in ICO scams tarnishing the industry’s reputation.
11. Artificial Intelligence
Wall Street is going all in on artificial intelligence (AI). Firms are using computer algorithms to gain a competitive edge. AI can be used to analyze voice patterns on recorded calls at investment banks, identify trading patterns and even spot fraud.
More than 75% of daily trades on the NYSE and NASDAQ are performed by computers.
These 11 technologies have transformed the investment world, making it easier and quicker to buy and sell shares.
