The Most Common Form of Trading in Most Stock Exchanges Today
The historical background of floor trading with human brokers is discussed here. We also discuss the use of electronic trading systems to supplement floor trading. And we discuss the impact of technology on secondary markets. Read on to learn more. The floor trading with human brokers method continues to be the most common form of trading in most stock exchanges today.
Historical background of floor trading with human brokers
Floor trading with human brokers has a long history. In the early days, traders were screened before they could start . Today, is conducted using automated systems. Automated systems function in the same way as human brokers, except they do not require human interaction. However, some traders still find it beneficial to use human brokers.
The main role of floor traders is to provide liquidstoity to their clients. However, some traders also make trades for their own account. As has become more electronic, the practice of human floor traders is becoming increasingly rare. Today, most traders use computer terminals to execute transactions. Even so, some floor traders still make a profit.
Despite the decline in demand, floors remain an important element of the stock market. Floor brokers compete with brokers on the top floor for marketable orders. Therefore, they must use conversion and parity orders. However, their systems cannot accommodate the algorithms used by many up-the-floor brokers.
Electronic trading systems used to supplement floor trading
An electronic system can complement floor by facilitating electronic trades. For example, a member of the buy-side can use an electronic system to execute an order. The order can be executed in a variety of ways. The trader may be able to route the order through a member of the sell-side.
A member BD1 receives an order to buy 100 shares of a stock at 12:00, 12:01, and 12:04:00. The member determines the weighted average of the three trades. At 12:20:00, the member BD1 communicates the weighted average price to BD2 and executes the order at that price.
Impact of technology on secondary markets
The SEC, the government agency that oversees secondary markets, closely monitors and evaluates the effects of new technology on the markets. While new technologies are usually exciting and beneficial to issuers, investors, and other market participants, some concerns have arisen about their impact. New technologies are helping the markets grow and meet regulatory requirements, but the rapid pace of change has created new tensions in the markets. Here are a few things to keep in mind as new technologies become more prevalent.
First, technological advances can dramatically alter the way markets operate. For example, the telegraph, telephone, and ticker tape changed the way securities were traded. More recently, computer technologies have played a major role in secondary markets. The report discusses the history of market development, trends in technology use, and the initiatives of the Securities and Exchange Commission to respond to these changes.