How electronic trading has changed the speed of the financial market

Saying that information technology (IT) has revolutionised the way we live and work is an understatement: from being able to order a coffee via a mobile app while walking to our favourite café to having a system that can automatically place orders when stock is running low, there are not many things that technology can’t do today.

The upside of all this is that it’s made our lives much easier. And that is certainly true when it comes to how investors interact with capital markets.

  • We no longer need to manually sift through long financial documents looking for specific information. Instead, we just input a keyword in a search bar and the software will present us with any pertinent clauses within it.
  • We no longer have to contact companies or institutions for financial reports, and then wait for them to be delivered to us. These are now made available online and can be downloaded in mere seconds. 
  • We no longer have to manually research how specific bonds, mutual funds, or stocks are faring. All the information is updated in real-time and is available at the click of a button.
  • We no longer have to physically be at an exchange or a financial district to trade securities, foreign exchanges, or financial derivatives. Electronic trading means that we can, quickly and easily, do it online from wherever we are, even if all we have at hand is a mobile phone. 

But electronic trading comes with one big drawback, and that is the speed at which the financial markets now function. 

Traders and investors are now expected to make decisions far more quickly than they’ve ever had to. Indeed, a few minutes can make a world of difference to whether your trade or investment has really been a good move or not. 

More worryingly, sometimes, you don’t even have that much time to think about it: just think of the intraday order-response time for cash equity trades.

This is exacerbated by the fact that everyone else is doing it electronically, too. And we’re not exaggerating: in 2000, electronic trading made up just a one-digit percentage of all trading, while today it makes up the vast majority of trades.


So what does all this mean for the future?

Well, the reality is that things are only going to get faster, as more and more businesses around the globe choose to interact with capital markets through electronic trading. It will also get harder for companies that are not properly set up to go through the ever-increasing amounts of data that need to be checked in order to make informed financial decisions within a few seconds.

Thankfully, technology has solved the problem it has caused

Through strategy automation software, companies can now create a system that automates financial, investment, and hedging processes, using your selected parameters to conduct electronic trading on your behalf quickly and safely.

Read our article on dealing with financial market speed to find out how.