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The history of trading technology: From physical exchanges to virtual automation

Thanks to the internet, people are trading from anywhere

forex screen with glasses
Image: Unsplash

Today, trading is not only more sophisticated than ever, it’s more open. Thanks to new ideas and innovations, almost anyone with a desire to play the financial markets can go online and start trading. What’s even more interesting than the fact there are almost 10 million traders (of some description) worldwide, is that the demographics are so diverse.

As outlined in The Modern Traders report of 2017, 95% of online traders live outside of major financial centers. Naturally, the likes of New York, London, and Tokyo are where many of the major daily trades happen. However, thanks to the internet, people are trading from anywhere. From the 1.5 million online traders in Europe to 600,000 in South America, the industry has evolved significantly since the 17th century.

From India to London and New York

The London Stock Exchange was, technically, the first stock exchange. Picking up on the idea of stock trading from India, British businesses adopted the idea of selling shares. Using a coffee shop in London, stock traders found new ways to handle the ever-increasing number of shares being bought and sold. By 1773, the traders had bought the coffee shop and renamed it the London Stock Exchange. American colonies soon picked up on the idea and, by 1790, a similar operation was launched in Philadelphia.  

However, it wasn’t until 1792 that the industry really took off. When 24 supply brokers got together on Wall Street, they couldn’t have predicted what would happen. After signing the Buttonwood Agreement and becoming the New York Stock and Exchange Board in 1817, the world changed. Not only did it redefine the fortunes of businesses but the global economy. Of course, there’s always been a history of trading in the world. From Stone Age exchanges to medieval bartering, we’ve always understood the power of trading. However, to get to modern online trading platforms like MetaTrader, we have to credit the earlier pioneers in London and New York.

Ringing in the Changes

Indeed, it was those early investors that took us from physical exchanges to telephonic orders. By the mid-nineteenth century, printing telegraphs were being used to convey stock prices to traders in the US. In 1867, AT&T engineer Edward Calahan refined the system and tailored it to stocks trading. That allowed traders to send and receive price information via strips of paper containing alphabetic characters. This early innovation made the transference of information over long distances possible.

No longer did traders need to be present at an exchange to see the latest price information. Instead, they could wait for dedicated messenger boys to deliver updates. As technology was making it possible to get price information outside of exchanges, it was also changing daily operations inside them. In 1920, the first Teleregister went live.

These electromechanical boards provided real-time price information within exchanges. This, in turn, led to the open outcry system where traders would physically compete for the best deals. As the dissemination of information became easier, computers entered the mix. Two computerized stock quote delivery systems emerged in the 1960s. Providing details about recent prices, bid/ask data and trends, Ultronics, and Scantlin Electronics changed the game again. With technology now providing historical insights as well as live prices, traders quickly turned to their computers.

In tandem with the QuoTrek telephone system developed by Dataspeed Inc in the 1980s, trading was gradually becoming a virtual affair. Traders could review information on their computerized devices, compare it with real-time telephone data, and act accordingly. In fact, it was these systems that ultimately paved the way for what we have today. As computer technology improved and the internet has made the exchange of information easier, developers found ways to combine historical data with real-time prices.

The Internet Takes Computerisation to Another Level

Essentially picking up where Ultronics and Dataspeed left off, modern trading platforms like MetaTrader 4 provide virtual brokerage service. By tapping into financial networks, these programs are able to provide real-time data, advanced charts, and more. For example, via AvaTrade Technology, Friedberg Direct is able to connect online traders to various virtual systems.

From browser-based web trading to the downloadable MetaTrader 4, there are systems to suit all types. What’s more, in the age of information technology, auxiliary resources have become the norm. To support novices, trading guides, tutorials, daily updates from experts and copy trading are all available via desktops and mobiles. All of these innovations have opened up trading to millions. However, it’s not the end.

Just as we’ve come a long way since physically exchanging receipts, technology is moving forward and it’s being led by artificial intelligence (AI). Now, AI trading algorithms known as black box are popular. Using big data and high-frequency trading (HFT) methods, black box programs can execute trades in seconds. What’s more, they can refine their actions and improve over time using machine learning. With this technology, almost anyone can trade. However, even without it, the market is more accessible than ever before. This, in turn, means there are people more people trading than ever before.

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