Revolution might seem to some like a strong word, but in this case I do not use it lightly, and truly mean it by its definition.
The rise of technology over the past few years is only the start where we’re concerned, and you will drive the revolution which will result in financial institutions having to re-think how they provide liquidity and how intermediaries interact with us. And the joy of this process? It’s that we are barely at the beginning.
We are at the start of a major evolution in the trading world, which has been evolving since the financial crisis but is about to gather real steam.
Over the past few years we have seen the rise and development of electronic trading across various asset classes. This evolution is likely to continue; however it will result in a revolution in trading and how the markets are perceived.
IEX is potentially the first evolution of the reform to how the world will interact and utilise technology to provide a level playing field for all.
The challenge for the most part will remain in overall costs of technology, and the people able to afford the latest technology will naturally benefit for the next five years or so. But the key for financial institutions is to start to think about how to utilise technology in order to provide direct market access for all.
Wall Street is dead, long live Wall Street.
The step in this journey is the ever increasing evolution of retail trading platforms bringing information in line with that of a major bank. We aren’t massive leaps away, and a few of us are able to develop underlying systems far more sophisticated already.
NinjaTrader and Metastock are shining examples of the evolution but these will both develop and evolve far beyond what they are currently capable of. This will allow the average investor to start to invest further into trading systems and strategies that they can in turn manage themselves.
When technology finally catches up with the financial companies, regulation will increase and clear out a lot of the imposters.
It is very much what we have seen in many other industries.
The next step is the evolution of how funds, wealth managers and financial institutions consider you as traders and as investors.
The rise of technology allows a democratisation of financial investments otherwise reserved for the wealthy and privileged. The increased access, and therefore demand, drives further innovation and reduces the barrier to entry.
This then typically leads to either a financial bubble and impending crash, or increased market liquidity and further regularity in markets with the potential to really generate alpha more limited to key areas or information bias (i.e. those best able to take advantage of new technology or information can achieve superior results).
Where do we go then? Well, it’s a wondrous world of opportunities and failures.
My advice is to enjoy the ride, for as we attempt to push the technological boundaries of what is currently possible there will be many of us mounting pressure on those to drive advancement. Those who will come out as winners will have the informational advantage.