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The digital transformation of the stock market

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While there are many variables in the financial marketplace, the relentless growth of its numerous entities remains reassuringly consistent.

Take the foreign exchange, for example, which remains the single most liquid and popular market in the world. To reaffirm this, an estimated $220 billion is traded on the forex market every single hour, with around 90% of these transactions dominated by currency speculators who are striving to leverage intraday price shifts to their advantage.

The huge growth of this and similar entities can be largely attributed to the digital transformation of the financial marketplace, which has removed numerous barriers to entry and made a host of investment vehicles more accessible than ever before.

In this article, we’ll explore this further by analyzing the digital metamorphosis of the stock market, and ask how this has impacted on modern traders.

Prior to the Digital Age – The Issues with Historical Trading Practices

Prior to the digital age, investors would need to leverage human brokers to execute orders, usually by telephone. Not only would this require investors to build relationships with a trusted broker, but they would also have to pay a fixed commission fee every time they placed an order.

This is why financial and stock market trading was historically exclusive to professional investors and large corporations, who has direct access to the marketplace and the resources to frequently place orders in high volume.

Not only did this make for a relatively restricted an inaccessible market, but it also caused issues in terms of timing and the available trading vehicles. It was virtually impossible to place real-time orders, for example, thanks to the non-automated methodology of executing trades and potential delays in the chain of command. Similarly, investors had far less flexibility when trading non-derivative assets such as stocks and commodities, making it harder to profit in a depreciating market.

Explaining the Digital Transformation of the Stock Market  

Over the course of the last 20 years, however, the digital evolution has tackled these issues and completely changed the face of the industry.

Firstly, human brokers have been replaced with free to access, virtual trading platforms, which allow for the seamless execution of orders and offer a myriad of educational, analytical and risk management tools. These platforms also offer seamless and real-time access to the stock market and similar entities, empowering investors of all types of optimize their returns and successfully leverage prevailing trends and the macroeconomic climate to their advantage.

Interestingly, the majority of these online platforms also offer access to so-called demo accounts, which simulate live market conditions and enable novice traders to hone their practical skills in a risk-free environment. This is arguably one of the biggest transitions in the market as a whole, as even part-time and inexperienced traders can now aspire to make money through investment.

The evolution of trading vehicles has also revolutionized this stock market and other entities that usually require investors to assume ownership of an underlying financial instrument. Prior to the digital age, stock market traders would typically take ownership of the shares that they invested in, meaning that they inextricably bound by the performance of these assets. This made it difficult for investors to leverage short-term stock market trends or profit from equities in a depreciating market.

This is no longer the case, however, as modern-day traders can now apply methods such as spread betting to a host of assets including stocks and commodities. This is essentially a derivative strategy,  which negates the burden of ownership and enables traders to simply speculate on the future performance of an underlying asset within a predetermined time-frame.

As a result of this, online stock market traders can profit in a depreciated market by hedging against a particular company share, using the prices offered by platforms to determine their precise margins.

The Last Word 

Ultimately, this widespread transformation has taken little more than 20 years, while the evolution of the financial market has followed a similar pattern to those experienced in other industries.

The introduction of e-banking is certainly something that has improved financial market trading and a host of other practices, while highlights the scale of change that investors have seen in a relatively short space of time.

Interestingly, the market continues to evolve at pace in the digital age, with the proliferation of mobile trading tools such as the MT4 and new analytical tools (such as graphs on demand) among the latest developments.

Overall, this transformation has been extremely positive, with these changes having made the financial market more accessible and improved the returns available to investors. This is to be celebrated, while we hope to see more developments and improvements in the future.

Kevin is KnowTechie's founder and executive editor. With over 15 years of blogging experience in the tech industry, Kevin has transformed what was once a passion project into a full-blown tech news publication. Shoot him an email at kevin@knowtechie.com or find him on Mastodon or Post.

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