By 2011 investment firms on both the buy side and sell side were increasing their spending on technology for electronic trading. With the result that many floor traders and brokers were removed from the trading process. The move to electronic trading compared to floor trading continued to increase with many of the major exchanges around the world moving from floor trading to completely electronic trading. While the majority of retail trading in the United States happens over the Internet, retail trading volumes are dwarfed by institutional, inter-dealer and exchange trading.
However, in developing economies, especially in Asia, retail trading constitutes a significant portion of overall trading volume. Similarly, B2C trading traditionally happened over the phone and, while some still does, more brokers are allowing their clients to place orders using electronic systems. 1990s and most retail stock-broking probably takes place over the web now. Used by the vast majority of exchanges and traders, the FIX Protocol is the industry standard for pre-trade messaging and trade execution.
The goal is to reduce the incremental cost of trades as close to zero as possible, so that increased trading volumes don’t lead to significantly increased costs. This has translated to lower costs for investors. While electronic trading hasn’t necessarily lowered the cost of entry to the financial services industry, it has removed barriers within the industry and had a globalisation-style competition effect. Electronic trading has meant that the markets are less opaque. It’s easier to find out the price of securities when that information is flowing around the world electronically. The increased liquidity, competition and transparency means that spreads have tightened, especially for commoditised, exchange-traded instruments.
Several academics have argued that the continuous nature of electronic markets has incentivized a ‘wasteful’ technology race in pursuit of speed, where each market participant seeks to be faster than other participants. For retail investors, financial services on the web offer great benefits. The primary benefit is the reduced cost of transactions for all concerned as well as the ease and the convenience. Webdriven financial transactions bypass traditional hurdles such as logistics. From an infrastructure point of view, most exchanges will provide “gateways” which sit on a company’s network, acting in a manner similar to a proxy, connecting back to the exchange’s central system. GUI or the API will connect directly to a central system, across a leased line.
Many brokers develop their own systems, although there are some third-party solutions providers specializing in this area. L, trade processing and position-keeping systems. Some banks will develop their own electronic trading systems in-house, but this can be costly, especially when they need to connect to many exchanges, ECNs and brokers. There are a number of companies offering solutions in this area.
Some electronic trades are not planned or executed by human traders, but by complex algorithms. Different Types of Forex Trading Platforms, Which the Best ? The New Speed of Money, Reshaping Markets”. Growth of CME Globex Platform: A Retrospective”.