While the terms ‘trading’ and ‘investing’ are often used interchangeably, there are fundamental but
subtle difference that separate these two practices.
Certainly, the goal of investing is typically to build wealth in the medium to longer-term, whereas traders use vehicles and strategies that unlock short-term gains.
While technology and innovation has changed both practices considerably, it has arguably had the biggest impact on global trading. But what did trading used to be like, and how exactly have the financial markets evolved over time?
Then and Now – Historic Trading on Wall Street
The history of Wall Street can largely be traced back to the formation of the New York Stock Exchange (NYSE), which followed the signing of the ‘Buttonwood Agreement’ by 24 separate stockbrokers on May 17th, 1792.
This laid out the initial rule and guidelines for stock and commodities trading and sought to create trust between all participating parties, based on the premise that market trading was a corporeal endeavour that needed to be done in-person (or through physical brokers).
Even until a few decades ago, trading the market was largely done in-person and over the telephone, making it the preserve of seasoned or institutional investors across the globe. This has gradually changed since the onset of the digital age, with computerisation having encouraged brokerages to transition virtually and investors to embrace trading online from desktop devices and smartphones.
This has gradually made the markets and a broad range of investment vehicles increasingly accessible to more demographics, including retail traders and part-time operators.
What Technological Changes Have Been Most Impactful?
Perhaps the single biggest innovation has been the evolution of digital trading platforms, which serve as one-stop brokerage sites through which investors can analyse, prepare and execute individual trades.
The advancement of mobile technology and devices such as smartphones have helped these platforms to evolve further.
Even from a wider perspective, mobile payment technology is changing how we live and opening up and exciting market opportunities, while driving financial inclusion and increasing access to bank accounts by approximately 20% between 2011 and 2014.
Certainly, this trend has increased the number of active forex traders across the globe and boosted
daily trading volumes, while diversifying the demographics that have access to the markets across the globe.
Artificial intelligence (AI) and its core principle machine learning have also started to have an incredible impact on trading. More specifically, these innovations are helping traders to draw data from increasingly vast and unstructured sources (like social media), creating predictive analytics that are insightful and capable of driving more successful trades.
The Last Word – What are the Key Innovations of the Future?
While AI will become increasingly influential in the near and medium-term, there are other technologies
that will also shape the global financial markets going forward.
One of the most obvious is blockchain, which refers to innovative distributed ledger technology and creates immutable records of transactions. This technology has already had a huge impact on the global trade supply chain, while it may also help to minimise transaction costs and increase transparency across a range of investment markets.
This will be particularly crucial in volatile markets such as forex, which have been widely manipulated by institutional traders in the past and underpinned a widespread lack of transparency and mistrust in the sector.