ECONOMICS & MARKET INTELLIGENCE: The future of stock market trading

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THE world has been changing at an alarming rate and we now live in what is called the “information age”. The Internet has changed how business is being done as the Internet of Things and Artificial Intelligence take centre stage.
In the same vein, global financial markets have been evolving with new instruments being introduced and traded, from Contract for Differences, Exchange Traded Funds to Real Estate Investment Trusts.

The traditional stock markets have also shifted from manual to automated systems given the shift to online trading platforms. Technology and finance are perfectly converging, and this has allowed “anyone, anywhere”, who has an Internet connection to participate on the stock market.
Retail Online Share Trading
One of the latest developments on Zimbabwe capital markets has been the introduction of C-Trade (www.ctrade.co.zw) and ZSE-Direct (www.zsedirect.co.zw).
These are platforms that enable anyone from anywhere to buy and sell shares on the Zimbabwe Stock Exchange and Financial Securities Exchange. The platforms also give Zimbabweans in the diaspora a chance to invest in shares with enhanced simplicity. This is in line with global trends given that it makes use of the Internet and cell-phone technology, which in turn opens up the markets to retail investors.
Social Trading – The Latest Trend
Social Trading enables investors and traders to be kept updated on market developments through social trading groups or communities. These are basically informal groups consisting of individuals who share ideas and news flow about a common interest, which in this case is stock market trading.
This trend has also been catapulted by the growth of social media platforms. For example, Twitter is currently revolutionising agriculture markets in the USA.
Commodity brokers and traders are paying close attention to tweets as they can now gather real-time updates on planting intentions and yields and tracking a multitude of trends such as weather and flu outbreaks. Twitter also allows traders to follow news outlets and research groups, giving them tips and recommendations that can influence their trading decisions. Social media platforms also remain an important source of news despite the risks of “fake news”.
Direct Market Access (DMA) for Institutional Investors
The ZSE has also launched a DMA facility that permits the trading members of ZSE to provide direct trading terminals to their DMA clients (institutional investors). DMA is a mechanism whereby Fund Managers and Institutional investors can enter their orders directly into the Automated Trading System through a Client Binding Terminal without manual intervention by the Broker.
This new development means a buyer can place their own orders to the buy and sell instantly, and “advertise” the quantity and price of a stock at which they are willing to trade.
The major advantages of DMA are (i) traders have more control and full transparency of their order book; (ii) there is less potential for human error given that the orders to not go through brokers or market makers; (iii) it offers more anonymity — often attractive to institutional traders who would prefer nobody to know what they are buying or selling; (iv) lower overheads for brokers since all they are doing is allowing clients to place trades through their computers, (v) information leakage is also minimised because the trading is done anonymously; and (vi) lower transaction costs because only the technology is being paid for and not the usual order management and oversight responsibilities that come with an order passed to a Broker for execution.
Overall, DMA platforms can be integrated with sophisticated algorithmic trading strategies which can streamline the trading process for greater efficiency and cost savings.
The Future: Automated Trading
One of the many technologies that is disrupting the global financial markets is automated or algorithmic trading. The increased demand for speedy, reliable, and effective order execution as well as reduced transaction fees is expected to fuel the global growth of automated or algorithmic trading. Automated trading refers to the use of a computer program or software to create orders and automatically submit them to a market or exchange.
Automated trading systems and electronic trading platforms can execute repetitive tasks at speeds with orders of magnitude greater than any human equivalent. For example, many hedge funds make use of “algorithmic trading” which is a fully automated order entry based on a computer trading model. It is also worth noting that more than 75 percent of the stock shares traded on NYSE and NASDAQ originate from automated trading system orders.
These systems can be designed to trade forex, stocks, options and futures based on a predefined set of rules which determine when to enter an order, when to exit a position and how much money to invest in each trading product. Trading strategies vary, with some being designed to pick market tops and bottoms while others follow a trend or involve some complex random approaches.
When a predetermined signal emerges, the software actually places a trade automatically. These softwares are also known as Expert Advisors (EAs) or Trading Robots. EAs are programmed to automatically generate trading signals and notify traders of opportunities on the market. However, another type of automated trading system is a Trading Robot which, like an EA is a program that can identify market patterns and generate trading signals.
However, unlike an EA, a Trading Robot can automatically place order on behalf of the trader. An EA, on the other hand, will always require a trader to manually authorise a trade. As with any automated software, EAs and Robots reduce the chance of making emotional and irrational trading decisions, which commonly affects novices or inexperienced traders. These softwares follow a very strict and consecutive plan, free from any human intervention.
All in all, it appears that the future of stock market trading lies in the use of softwares. The bottom-line is that robots do not sleep. As markets deepen, we expect longer trading hours.
However, humans cannot possibly stay up all day and night throughout the trading week just to keep track of price action.
A robot can be programmed to watch market movements without the need to rest or even take breaks. The robot simply follows a set of rules based on technical indicators or price action and can execute trades automatically.