Equities Trading and the Internet
Once upon a time there was no Internet. OK, now take a deep breath. It’s alright because there is one now. For several decades (roughly from 1960 to 1990), large companies such as Merrill Lynch and Morgan Stanley were able to trade among themselves electronically, but these trades took place over private networks.
In 1978, the Intermarket Trading System (ITS) opened for business, providing an electronic link between the NYSE and competing exchanges, enabling brokers to access several markets. But still, only for the ‘in-crowd’.
Then in 1994, Aufhauser Securities (now owned by Ameritrade) created the first Internet trading system. As Internet trading grew dramatically, companies developed systems allowing individual investors to not only trade, but access information once available only to those large companies.
The world has never been the same since.
Trading commissions fell to negligible territory. Twenty years ago, it was common to pay $100 or more on a $1000 trade; online trading fees are less than $10 today. Yet, despite the considerable drop in prices, brokerages are making enormous profits, thanks to the increase in trading volume.
Peak volume in 1824 on the NYSE was 380,000 shares, though less than 10,000 was the norm in 1835. Unfair comparison, too far back? Fine. In 1992 average daily volume was 200 million shares. Today, it’s over 1.6 Billion. Peaks as high as 3 billion have been seen.
Along with lower prices and increased volume, trading times have shortened from an hour or half a day, to a few seconds. And you wonder why the floor brokers are always yelling at one another on the stock exchange.
Research, once available only to specialized analysts in large brokerage firms, is now accessible to the average investor with an online trading account - often for free. And the research itself has grown from simple Earnings Per Share and Dividend Yield data to a bewildering array of Relative Strength Indexes (RSI), Moving Average Convergence Divergence (MACD), Bollinger Bands and others even more arcane.
Networked trading, along with other computer technology, has made exchanges international and in some cases global. Only a few years ago the Amsterdam, Brussels, Lisbon and Paris exchanges merged into Euronext - a single trading exchange for countries with widely differing backgrounds. Efforts continue to bring the London Stock Exchange into partnership with Euronext or FWB (Frankfurter Wertpapierbörse, the major German exchange), or both.
As a consequence of the emergence of merging exchanges, trading has improved not only for members but the individual investor as well. It isn’t just citizens of the countries involved in Euronext who can trade there. Exchanges the world over are now open to almost any investor anywhere. Now anyone, not just London’s professional traders, can enjoy the effects of sleep deprivation monitoring and trading on exchanges that cross every time zone on the globe.
All this change, while difficult to absorb, has one overriding goal and result - you can now make (or lose) a lot more money a lot faster, in a lot more places, than your father. That ought to produce at least a few interesting family dinner conversations.