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I've been hearing a lot lately from STOCKS & COMMODITIES readers who are confused about all the changes taking place in the markets, particularly in the electronic trading arena. Understandably, they want to know just what it all means for them.
The first concern for any trader with a short trading horizon, and therefore with lots of transactions, would be to lower overhead costs. You can achieve that these days by using the Internet to perform research, analysis, and order entry and confirmation. The most familiar example of traders exploiting this capability are daytraders, who, despite the hype, probably don't number more than several tens of thousands at this point, though their number is growing.
What is happening is that longer-term traders -- and even investors -- are locking into the same capabilities that the shortest-term traders have developed. They are realizing their business can be done cheaper, more certainly, and more accurately, even if speed isn't their main concern. Would you rather call your broker, give him an order, wait while he calls it in, wonder if he got it right, and then finally hear back from him a couple of hours later -- or would you rather see your order executed onscreen in about 20 seconds?
When you think about it, is there any benefit anymore to being on a broker's call list? The Internet has made it possible for far more investors to decide for themselves where their money will go. Once you start deciding for yourself where to place your money, the next question is efficiency. Who can execute the trade at the best price, and fast? In this environment, we see Schwab buying CyberCorp, because Schwab needs the technology for its active investors who will otherwise migrate elsewhere, and we see Merrill Lynch moving online at an achingly slow pace. The early adopters are forcing a sea of changes in brokerages and exchanges.
The bottom line for our readers is that you should probably be online, simply because you probably place your bets yourself. Given the how-to nature of STOCKS & COMMODITIES, not many of our readers likely have their brokers calling all the shots for their investment dollars. So if you aren't already, you should be using electronic order entry and electronic order execution (that is, the Internet) for stocks now, and as soon as possible for bonds and futures. It's cheaper, faster, better priced and better documented. All that means your overhead is lower.
That said, those of us who create our own analyses and trading systems haven't yet seen that capability on the 'Net. The closest we've gotten so far are the rapidly elaborating stock-screening capabilities offered by some Websites. (Have you, for instance, seen what Standard & Poor's offers for stock screening these days?) However, this will come as vendors -- both mature companies and new startups-- race to create Web-based interfaces to their proprietary code. Most will probably throw in data access, which will help relieve a painful headache that's been pulsing for decades. Again, lower overhead is on the horizon.
Add to that the advent of worldwide, 'round-the-clock price searching, and trading spreads should shrink to minuscule sizes. Trading, which was once an arcane practice limited to market professionals and a few retail competitors, is getting to be the next big thing. Think of the booms and busts we can have, now that everyone can get involved! Good Fortune!
