How Technology is Reshaping Market Access
Over the past few decades, major advancements in technology have dramatically transformed market access in the financial sectors. Traditional trading floors, a maelstrom of frenzied activity, have now largely been replaced by algorithm-driven strategies and intuitive eTrading platforms. This shift has altered the trading landscape, enabling a broader demographic of users to access financial markets and even giving rise to brand-new asset classes.
Understanding these technological developments, whether that’s eTrading or the emergence of cryptocurrency, reveals not only the evolution of the financial markets but also how traders and investors are adapting to these new tools.
Algorithmic Trading Revealed
One of the biggest shifts in market access has been brought about by algorithmic trading. First becoming mainstream in the late 20th Century, this technology allows for trades to be executed at speeds and volumes that surpass human capability.
As the name suggests, algorithmic trades use pre-programmed algorithms to execute orders based on a range of variables: price, volume, or even time, etc. These trades can be placed in fractions of a second, with minimal to zero need for human intervention.
The Role of Algorithmic Trading in RNGs
Key to the efficacy of this innovative trading method is the Random Number Generator (RNGs). RNGs are mostly commonly associated with the gaming sphere, powering everything from fascinating online slots to competitive eSports games. We won’t go too heavily into the tech that underpins RNGs here, but suffice to say they can be programmed to deliver unpredictable and unrepeatable outcomes in slots.
Each spin of an online slot is governed by an RNG, which generates a random sequence of numbers corresponding to the symbols on the reels. This process occurs in milliseconds, determining the outcome of each spin independently of previous or future spins.
To sum up, online slots utilize RNGs to replicate the randomness of physical slot machines in a digital environment. This technology ensures that every player has an equal chance of winning, regardless of past results or the time of day they’re playing.
The integration of an RNG into trading algorithms, similarly, removes predictability, making it particularly useful in high-frequency trading (HFT), where large volumes of orders are placed at ultra-fast speeds. Plus, the randomness introduced by RNGs helps facilitate more stable and profitable trades.
This method of trading also reduces latency, allowing traders to respond to market fluctuations in real time. In volatile markets, where prices can shift in milliseconds, this level of speed is essential. But, it’s not without risk…
For instance, while algorithmic trading systems can execute trades efficiently, they can also exacerbate market volatility if programmed improperly. The memorable ‘Flash Crash’ of 2010, which plunged the US stock market into momentary uncertainty, highlights the potential risks involved in automated trading.
Nevertheless, algorithmic trading is now responsible for a significant portion of global trading volume—recent estimates suggesting it accounts for over 60% of all equity market trades in the US alone. Plus, as financial institutions become more reliant on algorithms, the tools and tech powering them become more evolved, delivering greater precision and liquidity to traders.
Democratizing Access with eTrading Platforms
If algorithmic trading is revolutionizing the back-end of market operations, eTrading apps and platforms are revolutionizing the front-end.
In 2024, accessing financial markets is simpler, more intuitive, and more widespread than ever before. The reason why? Platforms like eToro, E Trade, Robinhood, etc, which allow users to trade stocks, bonds, options, and even digital asset classes at the click of a mouse or a tap of a smartphone screen.
Up until fairly recently, financial trading was largely limited to the pros or individuals who could afford brokerage services. Now, anyone with a smartphone, a data connection and a grasp of the fundamentals of financial markets can participate. Moreover, the introduction of commission-free eTrading has further dismantled barriers to entry.
This global democratization of market access has resulted in significant shifts taking place in the demographics of traders. Much of the industry’s past was dominated by older wealthy individuals—the majority of which were male. Today’s market participants are younger, more diverse in their socio-economic backgrounds and gender identities.
According to a 2021 report by Charles Schwab into the “investor generation”, 15% of all respondents first began investing in 2020. Moreover, this new generation of investors with a median age of 35 are, in general, more optimistic about market performances. They’re also much more educated about financial planning, with 38% of respondents having written financial strategies in place and 56% investing in buy-to-hold portfolios for long-term gains.
It’s no accident that attitudes are shifting in conjunctions with a rise in the usage of e Trading platforms. As well as providing training tools catering to different experience levels, many of these platforms provide educational resources (market analysis, real time news reports, tutorials) that Gen I has no issue digesting. There’s a gamification element involved here too, as the more users engage with a platform or app, the more they can accrue knowledge and experience via precise tools like in-depth charting and trading in more diverse asset classes.
A New Asset Class for the Digital Age: Cryptocurrency
Finally, it would be impossible to dive into the tech-driven changes in market access without mentioning cryptocurrency. In short, the emergence of decentralized currencies has added another layer to the transformation of financial markets.
As an asset class, crypto is radically different from stocks, bonds, or commodities. Firstly, cryptocurrencies operate on decentralized networks powered by blockchain technology, which means no single entity controls the currency. This makes them appealing to potential inventors who value autonomy, privacy and transparency, especially those in regions with unstable political and financial systems.
What’s more, traders can literally access crypto markets 24/7. The likes of NYSE and Forex only operate within specific hours, but decentralized currencies can be bought and traded at any time.
Crypto may well still be considered a speculative asset, but it’s received pretty substantial mainstream backing of late—Blackrock is just one major player to have launched a Bitcoin ETF in 2024. Fundamentally, it appeals to new generations of inventors who are energized by its volatility.
