The tremendous evolution of the markets since the days of actual ticker tape and smoke-filled back-room deals is widely recognized, but perhaps even more noteworthy for everyday investors have been the changes witnessed during the last 15 years thanks to the proliferation of electronic markets.
While professional traders may mourn the days of the competitive, yet clubby, tightly packed pits on the floor, today’s electronic markets have ushered in a new era of competition amongst traders that is benefitting end users like never before.
Elements of electronic trading like colocation, proximity hosting and network connections allow for more market participants to have access to market data and post their orders than the limited space of the trading floor ever did. And for those who have long relied on the futures markets to hedge their risk, the benefits of electronic trading are equally significant, including lower costs, tighter spreads and greater liquidity.
There have always been professional intermediaries in the market—those willing to make markets at all times, providing liquidity to those who need the futures markets to lower the risks of their business. But as markets went electronic, professional traders on the floor found themselves facing a new breed of technologically savvy market participants who provided the same service to the market at lower cost, with narrower spreads and at greater scale. This shift in competitive landscape is no different from what we see across industries over time: those who invest in technology and evolve with the market thrive; those who do not are disrupted, losing market share and profitability.