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have been recorded in the buyer's account, in practice, electronic trades accomplish all of that in
seconds. This makes the entire process exceedingly transparent and efficient.
High-Frequency Trading
Stocks markets do not remain untouched by the ever-evolving human nature to execute tasks
quicker and also to have the maximum returns in the shortest time frames. High frequency
trading, that is, real-time execution of Buy and Sell orders has made the former task possible.
The latter part has been utilized by institutional investors, which use high frequency trading
techniques to cause trend reversals, which can misguide small-scale investors. The big fish
manage to sell off or buy a million shares in a matter of a few milliseconds, causing the tremors.
Program Trading and Glitches
Many institutional investors, such as mutual funds,
hedge funds and pension funds, use predefined
algorithms to buy and sell stocks. This can result in a
sudden sell-off or purchase of stocks, because the
program has a specific date and time to make the
trade. The sudden volume can fool investors. In
addition, some institutional investors experience
technology glitches that can trigger sudden buying and
selling. These events can put traders in a panic,
because they see no news to justify the trades, and
assume that they should buy or sell the stock so they
can make the most of the action.
In April 2013 , Twitter account of Associated
Press was hacked, false reports of W hite House being
bombed and Barack Obama being injured went viral.
This sent markets lurching downward with the Global Dow index losing 150 points (a loss of
$136bn in market value) even before Associated Press could put out the news of its account
being hacked. Meanwhile, robotic trading algorithms had executed massive panic selling orders.
The Future
Having acquainted you with the clouds of uncertainty and volatility looming over the
stock markets, there is another technology on the threshold of making a mark in the world old
stocks. Colloquially called “ the future of the financial services infrastructure ”, technology giants
are on the path to make it an integral part of our financial systems. Yes, you guessed it right, I’m
referring to the revolutionary “ Blockchain Technology ”.
“Today, blockchain—the technology behind the digital currency bitcoin—might seem like
a trinket for computer geeks. But once widely adopted, it will transform the world,” says Ginni
Rometty, CEO of IBM.
The distributed ledger technology could enable savings for the entities involved by
reducing duplication of processes, settlement time, collateral requirements and operational
overheads. This, in turn, would minimize the need to set aside financial resources to cater to
counterparty risks and achieve higher anti-money laundering standards and reduced risk
exposure. However, the path to its adoption will require resolving issues such as scalability,
common standards, regulation and legislation.
We certainly are on the brink of a revolutionary transformation in the realm of stock exchanges.