Electronic trading uses computer technology to bring buyers and sellers together in a virtual market place, rather than on a trading floor. Nearly all the exchanges in the U.S. and Europe have some kind of electronic platform, instead of or in addition to trading on the floor. NASDAQ was the first all-electronic stock exchange. NYSE Arca and Globex are examples of exchange-owned electronic trading platforms.
Electronic trading, either directly with counterparties or through an online intermediary, has transformed traditional methods of trading through exchanges. Rather than joining the exchange and trading from the floor, institutional investors, broker-dealers and market makers can trade directly via an Electronic Communications Network, or ECN, which automatically matches buy and sell orders at specified prices. ECNs register with the U.S. Securities and Exchange Commission (SEC) as broker-dealers.
Individual investors and retail traders usually access ECNs through an account with a broker-dealer subscriber that allows the trader access to its trading platform. A platform lets customers do research and execute orders from their computers, and usually differ according to the markets they trade - commodity futures, options, stocks or currencies (forex) However, brokers that trade all markets will generally offer separate trading platforms for each.
Initially, electronic trading was done only "after-hours" and just augmented trading during regular exchange hours. Exchanges promised this electronic "after-hours trading" would not supplant the trading floor, but competitive challenges from newer electronic trading platforms eventually forced the exchanges to offer daytime electronic markets as well.
When out of the office or home, market participants are able to use their mobile devices to do many transactions. Many firms offer their own mobile phone applications or platforms.
High Frequency Trading
High-frequency trading encompasses trades that are executed on electronic algorithmic trading systems at lightning speed. In the wake of the "Flash Crash" of May 6, 2010, the SEC and the U.S. Commodity Futures Trading Commission (CFTC) formed a joint committee to study emerging regulatory issues. Its conclusions and recommendations, which were released on Feb. 18, 2011, included several areas addressing high-frequency trading (HFT). On Feb. 29, 2012, CFTC chairman Gary Gensler announced that the commission would be issuing a "concept release" on the regulation of HFT, to "address potential market disruptions that high-frequency traders and others who have automated market access can cause".
NASDAQ, founded in 1971, was the world's first electronic stock exchange.
In the futures world, Europe was ahead of the U.S. in closing down the trading floors and moving to electronic trading. Open outcry exchanges such as the Chicago Board of Trade were slower to adopt electronic trading because of their member-owned governance structure, in which every major decision had to be voted on by 2,171 exchange members whose livings depended on the pits.
- Interactive Brokers
- MB Trading
- TD Ameritrade
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- SEC, CFTC Announce Creation Of Joint CFTC-SEC Advisory Committee On Emerging Regulatory Issues. SEC.
- CFTC seeks to tighten regulation on 'algos'. FT.com.
- 1971 - THAT WAS THEN; 2011 - THIS IS NOW. NASDAQ.
- CBOT Gazes into the Pit. Fortune.
- Best Online Brokers Survey. Barron's.