The Future Of Financial Markets
The future of financial markets is computer-driven trading, and the future is here now. It used to be that financial markets consisted of open outcry auctions, in which traders would gather around a pit and shout out bid and ask prices for various commodities, such as metals, currencies, and oil. Slowly, these pits are being displaced from computerized systems that match buys and sells in real-time on a computer platform. Jacob Menson, a noted Financial and Operations Principal, predicted that “within a decade, the open outcry will be dead, completely replaced by computerized trading.”
One of the purest forms of computerized trading is the currency market. Currencies are traded in pairs, such as EUR/USD, which stands for a long position in the euro and a short position in the U.S. dollar. Pricing is always given as a ratio in which the numerator, or base currency, is given a value of one. The denominator, or quote currency, specifies how many units of quote currency must be sold to purchase one unit of base currency.
For instance, a EUR/USD price of 1.4302 means you have to spend $143,020 to receive 100,000 euros, the standard lot. Pricing is carried to four decimal places, called a pip. Orders are placed on an electronic marketplace called the interbank market. Computers, not humans, mediate the currency transactions.
Another future dimension for financial markets is increasing the participation from John Q. Public. Professionals know that the more people participate in any given market, the more liquid the market is. Liquidity is the ability to buy or sell some amount of a financial instrument or commodity without impacting prices. A liquid market is enhanced when there are many open buy and sell orders adjacent to the current price.
One way to achieve liquidity is to recruit investors into financial markets. Brokers and other interested parties reach out to new participants through sales leads. There are quality companies that sell lists of potential qualified investors. By quality, I mean ones that keep up-to-date databases. Databases can become outdated and inexact. Duplicate information can creep into a file, and keying errors can alienate potential customers. A quality list provider uses a multiple merge/purge system specially designed to correct these problems and save list buyers money. Merge/Purge systems can find and match more true duplicates than most duplicate identification programs.
These databases provide leads for a number of markets:
- Small cap stocks
- Micro cap stocks
- Private placements
- Currency trading
- Mutual Funds
- Hedge Funds
- Oil and Gas
In short, the future of financial markets is exciting, with more efficient means of transacting and a greater pool of participants buying and selling.