Equities Trading and the Internet
In the beginning, if you had a need to buy or sell stocks and shares, you had to take a walk to the London Stock Exchange to make your trades. Brokers and traders intermingled in the stock market floor looking for someone to exchange stocks with. Over time, the ticker became method to figure out how much a stock was worth.
Stock trading was still in the dark ages with information being sent through the ticker. This changed in the early 1960ís when large financial companies started trading electronically among themselves. This electronic trading system was only meant for the huge corporations and super rich individuals and the common investor never knew that such a system existed.
Most of these electronic trades were only done by members of the same exchange. That is until the Intermarket Trading System (ITS) was created in 1978. It allowed brokers and traders to buy and sell shares in exchanges that were competing with the New York stock exchange. The ITS was still used only by the deep pocket traders and corporations with small investors locked out of it. When Aufhauser Securities created the first internet trading system in 1994, the world of stock trading was changed.
The internet has changed the equities markets a great deal.
The first thing that internet stock trading created was a new group of investors who otherwise never had the time or inclination to trade in the stock exchanges. It was now possible for the small trader to have the same information on price movement as a major bank. It was also easier for the small trader to use the internet at work or at home to place trades that he would otherwise have made by calling his stockbroker.
Since there were now more investors willing to take a risk in the stock market, brokers were forced to reduce their trading commissions. Competition from online discount brokers made it possible to greatly reduce the cost of exchanging stocks. From hundreds of pounds per trade to sometimes pennies per trade, the commissions charged by stockbrokers fell.
With more small investors and lower transaction costs, the stock market ballooned in volume. The number of stocks traded in a day increased exponentially. The time it took to complete stock trading transactions was reduced from days to microseconds. This has been one of the main reason why investing in the stock market has been profitable.
The advent of the internet has not only changed the way we live and interact with others but also the way we invest our funds.
It seems hard to imagine a life where a trader could make a living in his bedroom. The internet has greatly influenced the wealth of nations by attracting funds from sources that were never involved in the stock market before. One can only wonder how far internet technology will take equities trading.