Electronic Trading: Unlocking New Opportunities

Topics: Stock market, Stock exchange, Stock Pages: 13 (4859 words) Published: April 1, 2011
When it comes to electronic trading, for most individual investors, taking a long-term buy and hold approach is probably the best strategy. Electronic trading refers to the trading of securities (equities and derivatives) in the stock exchanges, without, or with minimal human intervention. In simple words it means to buy or sell a commodity or a security through a computer or more precisely it is the electronic implementation of financial systems. The paper aims to highlight the growth and future of electronic trading in India. This paper also analyzes type of technology used by major stock exchanges (Sensex and Nifty) and by the Indian customer in E- trading. This paper also reveals the role of intermediaries in trading online and how they differ from traditional stock brokers in terms of investment and money management.

Key words: Electronic trading, E-trading, Sensex, Nifty

Electronic trading, also known as e-trading is a tool for electronically trading of securities (such as stocks and bonds), foreign currency and exchange traded securities. It is an electronic media which uses information technology for bringing together buyers and sellers to create a virtual market place. Each stock exchange has certain listed securities and permitted securities which are traded on it. Traditionally till 1994, trading on the stock market in India was based on the open outcry system. As the nomenclature suggests, under this system, traders and shouted and resorted to signals on the trading floor of the exchange which consisted of several “national” trading posts for different securities. With the establishment of the National Stock Exchange in 1994, India entered the era of the e-trading. Within a short period of time, e-trading has supplanted the open outcry system on all the stock exchanges in the country. The transformation has been at such a pace that no other has achieved it so rapidly. The integration of information and communications technologies (IT) is playing a key role in transforming the nature of work. The link between IT and transformation is poorly understood, and further theoretical developments are needed to advance our current knowledge of this relationship. Electronic trading is not just opening new sales channels only. It means streamlining our business model, increasing our revenues and improved efficiency. It is only possible by reducing costs and with the customers, suppliers and partners to build closer, more responsive relationships to drive revenue and profits. Electronic trading enables us to increase revenue while building customer loyalty through increased efficiency of order processing and reduce costs. Millions of people trade billions of shares of stock everyday on a vast collection of computer systems that are incredibly reliable and very nearly error-free. There are so many things happening at once that system becomes difficult to comprehend, and the fact that it works so really well is truly a feat. As said by the CEO of IBM “ electronic trading will transform the world on everyone enterprise, leading to the survival of the fittest, it will change the way we do business and child education methods as well as their personal capacity for communication and exchange of the way”. Today many investments firms on both the buy side and sell side are increasing their spending on technology for electronic trading. Many floor traders and brokers are being removed from the trading process. Traders are relying on algorithms to analyze market conditions and then execute their orders. Thus, e-trading is continuously unlocking new opportunities for both buyers and sellers for their long term impacts on their functioning.

Review of Literature
Stoll (2006) examined that Electronic trading has improved the efficiency of stock markets and hence has reduced the cost of providing liquidity and has...
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