Contemporary state of stock market.

Electronic trading at stock market

Globalization of the capital market and development of technologies led to revision of the entire concept of functioning and development of monetary and stock markets. Certainly, money of private investors, whose arrival was conditioned by advanced electronic technologies and a possibility of electronic trading (internet trading, for example), in recent years contributed to an unprecedented rise of the market, maintenance of high liquidity and the heyday of investment activities.

On the other hand, in spite of obvious advantages - cheapness, simplicity, transparency and promptness of operations, transition to new technologies of securities trading required overcoming of conservatism of big professional market participants. Old gamblers, losing their business, are always fighting against introduction of new ideas in the market. But progress is unstoppable. Classic exchanges (stock exchanges) work according to such an old scheme, that if all inventions made for the last 100 years disappear, and people could write only with goose-quills, they would continue existing. They have a trading pit and traditional voiced trading in the hall. For example, at New York Stock Exchange (NYSE), the number of exchange members has not changed since 1953 is equal to 1366. It is possible become its member only by purchasing membership from its another participant, passing numerous checks of your activities, solvency, etc. Then it is necessary to receive a approval of the special Committee for admission of new members and the Exchange Council (Board of Directors). Usually, recommendations from other orating exchange members are required.

In August, 1999 for one place at NYSE 2'650'000 USD were paid and it is only for the right to participate in stock exchange trading without taxes and dues!

The mechanism of transaction at the classic exchange (stock exchange) reminds much of a trading network with wholesale and retail outlets. The investor approaches his broker requesting to buy or sell a certain security. Then the broker contacts the inquiry department of his company at this exchange, and the inquiry is passed to the exchange hall, where the floor broker receives it and passes to the trading post for this particular security. At the post, the broker finds out the current situation in the market by inquiring a specialist or visually checking the display, with shows market data for each security. Then the broker announces his inquiry or requests other traders to provide him with quotation. After the security is sold, the broker notifies his central office, which, in its turn, notifies the client. The more intermediaries act in between, the more brokers earn on investors. No wonder no one wants to leave such a fat job.

Development of the Internet technologies as well as internet trading and globalization of the world economy manifested themselves formation and expansion of new electronic exchanges and electronic trading development. One of such examples is the biggest electronic exchange NASDAQ, which within some twenty last years left behind all the biggest stock exchanges with secular traditions in volume of traded stocks and quantity of initial placements. Operations are carried out only via computer networks, i.e. there are no trading areas. More than 200,000 terminals are scattered all over the world, and you can become a participant of electronic trading from any place in the world.

Competition in modern financial markets leads to:

  • Investment of considerable resources in the latest technologies;
  • Creation of new market instruments on their basis;
  • Improvement of services quality;
  • Reduction of transaction expenses;
  • Establishment of direct connections between investors and issuers irrespective of nationality.

How can a modern stock exchange be described? The most important thing is that the exchange is extremely accessible. Any person now, even with a small deposit of several hundreds dollars, can become a participant of trading. Liquidation of a large number of intermediate links considerably reduced cost of services. Commission, spread and other broker fees became several times less, and as a consequence more and more not very rich investors come to the stock exchange. Improvement of trading conditions (instant and accurate execution of orders and impressive Leverage) made electronic exchange trade very popular. It is naturally, that a person with a small capital will have small profit. But this profit can be reinvested and make the next income quite considerable.

It is safe to say, that the only way of the modern stock exchange is to integrate with the international electronic environment, which provides anyone with an opportunity to become its participant.

Stock exchange / Electronic trading
*  This article has been prepared and written by the specialists of analytics department of the Company Larson & Holz IT Ltd. in 2004: Stock market / Electronic trading
All rights reserved.
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