The article makes a bold statement in the first paragraph, basically saying that the replacement of brokers and traders with technology has not increased the efficiency of the market. However through out the entire article, it goes on to show how technology may not have increased efficiency in the market but it definitely makes it easier for the small trader.
It has increased market efficiency in a few ways. By taking out the middle man of the broker, fees that had previously been at least fifty dollars have dropped down to no more than fifteen, making it more affordable for everyone to day trade. Technology has a huge part in this, simply taking out one more person.
It decreases human error or at least changes where the human error can occur. Technology takes out two human interfaces: the broker and the trader. Now instead of there being the possibility of miscommunication between the buyer and the broker or the broker and the trader, the only possible human error is the wrong input into a computer, putting too many zeros or not enough zeros.
While technology does a great part in matching buyers and sellers more quickly and efficiently than a human could possibly try to do, it still begs the question: why does the article claim that the markets are still not more efficient? Basically it comes down to now that we can do things faster, we want to do more with them and do more complicated things with them than ever before. Ever heard of an ETF? Those appeared not too long ago… there were less than a hundred before 2006. Investors in general are trading more often because they can constantly keep up with the market prices, the very serious ones may even have Morningstar or a similar program on their PCs in order to have the up to the second information. “Day trader” is a term that appeared in the 90s, a person who trades on the market everyday. A day trader was not possible before the internet, when an investor could look up stock prices at any time during the day.
Also, there is a much higher volume of people in the markets, making it hard for the technology to keep up with the demand. Markets that are still struggling to catch up with the technology that is demanded must also keep in mind that the technology they are using and upgrading to will also be inefficient and out dated in a matter of weeks.
In the end, has more technology made the markets more efficient? It is difficult to believe that the answer is to that question is no. There is a higher volume of more trades than ever going through the markets at a faster rate than ever. To me, that has to mean that something has changed to make people able to trade that fast. Since human beings are only capable of so much, that something that changed could not be humans at all, but the tools that humans use: technology.
7 comments:
I agree with you that technology has made the market more efficient. However, what I do wonder about is once you take into account the increased quantity of trades, are the people/entities overall making more money with the increased efficiency? Or is there a larger volume with more complexity, but not increased profit?
- Jessica D.
I think markets are becoming more efficient, as a result of improved technology. From my research, I discovered that data processing systems and algorithmic trading, has shortened trade execution times. Also it has reduced volatility in the market because information is acquired more rapidly, and new information can be more instantaneously reflected in stock prices.
It is definitely certain that technology has led the market to be more efficient. The tools used have enabled transactions to be done more rapidly and surely than before. More trades are now possible because of the short trade execution as Deepak pointed out. I believe the answer to the article's question ( whether or not the market has become more efficient) is yes because of the increasing volume of trades.
I think the market is more efficient with the increase in technology. Resulting in larger volumes of trades and a reduction in execution. However, it cuts out the trader and eliminates broker fees. At least for now. What's stopping companies who supply online trading to start charging fees for online transactions?
Really interesting article, but it still shows the importance of human involvement in terms of the market. Even though, technolgy helps reduce error, it still lacks the abilty of critical thinking that brokers may have.
I agree that technology has made more efficiet and less mistake by eliminating human errors. Nowadays, there are many orders in stock exchange that human can not handle which result in introducing technology in stock exchange and stock exchange has been making every effort to update the technology in order to meet the increase of demand. Therefore, I think that more technology is really making market more efficient.
I think that technology will really help make the market more efficient. The only problem I can see is that if we become to dependent on said technology a hacker or something like that maybe able to get in and cause problems.
-Phil
Post a Comment