December 19, 2023
Kristal spotlight: Kristal.AI CEO & Founder on Dynamic B2C and B2B(2C) Expansion in SE Asia, India and the UAE
Like virtually every other sector, technology has radically changed investing. Stock markets have undergone a drastic change. The world of only 20 years ago looks almost unrecognisable. Here's a quick journey that we have traversed, thanks to technology.
Most stock markets around the world started with humble origins. For instance, what became of India's BSE began life as a small trading group that sat under a banyan tree.As recently as 30 years ago, jobbers crowded the market floor known as the ring. Traders used voice and hand gestures to execute trades in the 'pit'. The bids and asks on the open market floor led to price discovery. As tedious, flawed and time-consuming it was.Investing was a long-drawn process, involving a lot of paperwork. Right from account opening to execution, everything was physical. Know your client (KYC) meant physical appearance and trust. Orders used to take a long time. Share certificates had to be delivered. There was a high risk of fraud.Access to corporate information was minimal. Only existing investors got a copy of a company's annual reports. It was very difficult for prospective investors to know about a company's financials.
The 1990s was a transformation for the securities market. The advent of the Internet meant exchanges introduced electronic order matching systems. Screen-based trading started becoming a norm. In India, the National Securities Depository Limited was incorporated in 1996. This meant that shares were now held in dematerialised form. This reduced the trading and settlement to T+2 days.Today, there is less dependency on the broker for the execution of trades. The investor has several choices of executing his trades. They can call the dealing desk of the broker. Or place an order through a computer or a mobile phone. The contract notes are delivered to your inbox. Trade settlement and clearing have become faster. The broker offers a wide range of tools for his clients. These can be in-house research reports, stock screeners and technical analysis tools.Fintech companies or brokers have introduced mobile app-based trading platforms. Also, a lot of fintech-enabled discount brokers came into the foray and provided services at almost zero brokerage. Apart from a desktop or laptop-based trading interface they also offer mobile app-based for trade execution, IPO application, or mutual fund investments.
Today, the world of investment is just a click away. Thanks to technology and regulators seeking more information, investors now have data at a click or tap. Several websites process tonnes of data and offer it to investors in an easy to understand manner. Such access to easily available information gives the investor confidence in decision-making.This is not to say that an avalanche of information has necessarily made investing easier. That is because a lot more data also brings in a lot of noise. It is then up to the investor on how to separate the signal and the noise. But for an investor starved of even basic data a few decades ago, the investing world has been transformed.
The marriage of finance and technology has resulted in the creation of a vast number of instruments that can be used to create wealth. While investors previously only had the option to invest in stocks and bonds, today, they have derivatives, funds and ETFs catering to a number of investing needs.Only a decade ago, global investing was an option only for the well-heeled. Today, investors can put money outside their home country through a simple process.
The electronic system also improved the way institutions invested in the market. In India, SEBI introduced direct market access (DMA) in 2008. DMA allowed brokers to let institutional clients place orders directly. This ensured faster execution, lower costs and a liquid market.Advanced computing power means that professional investors can scan through millions of data points to analyse companies both on a technical and fundamental basic.Algo trading involves the execution of trades based on some pre-defined criteria using software codes. Here, a trader can predefine his criteria and the system automatically executes when the conditions are met. Today, a bulk of the traded volume in leading exchanges is done by algo.This has led to a market where simple strategies, such as arbitrage, have become less easy to profit from. But investors with sophisticated tools backing them have an edge over others.
The future of investing is likely to evolve into one where investors have a wide array of investing options at their disposal. This means more freedom to invest in a number of areas, in much more liquid instruments and at a reasonable cost.For financial companies, the rapid advances in technology also means the ability to reach out to the masses more effectively and create positive change.At the same time, more options and powerful computers would not make investing necessarily easy. In fact, there is already evidence that the rise of index ETFs has made generating alpha more difficult even for professional fund managers.The key to successful investing, however, will likely remain the same. With common sense and patience being the key ingredients of success. Technology will just make the journey far easier for many.
Kristal Tech Team
October 5, 2021
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December 19, 2023
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