[dropcap]I[/dropcap]t’s easy to look at the online trading landscape today and assume that not much has changed in the past few decades. To hear some tell it, fast, automated securities transactions have always been the norm. But the reality is far from that incorrect assumption. What’s the truth? It’s that the process has slowly evolved for about the past 40 years, beginning in the late 1970s when there were no personal computers, websites, mobile devices, or fast ordering.
In those days, unless you were in institutional trader or licensed broker, you had to pick up a telephone and verbally place an order. In fact, web-based brokerage houses and online forex trading sites simply did not yet exist because the digital infrastructure had not been built. Commissions were high and only a tiny percentage of individuals played the market. Soon, regulations came into place, some brokerage firms were regulated, technical sophistication gave birth to user-friendly platforms for order placement, and brokers began advertising to win customers.
At first, incentives for signing on with a particular firm included things like new account bonuses. Later, as competition heated up, savvy firms began offering expert advice and member-only libraries of books, articles, and training materials as enticements. In the 2020’s, people who decide to take part in the buying and selling of securities, whether casually or as a full-time job, can take advantage of risk-limiting services just for signing up as a new accountholder at one of hundreds of web-based firms. What were some of the key milestones along the way, from the 1970’s until now? Here’s a brief look at key moments in the evolution of modern securities websites.
No More Paper Certificates
In 1973, it seemed like a small idea at the time, but a new industry regulation that did away with paper stock/share certificates was revolutionary. It was the first of many steps that would turn the entire process of buying and selling of securities into a fully electronic affair. From that point onward, accounts were held and maintained electronically.
No Fixed Minimum Commissions
The SEC (Securities and Exchange Commission) in May of 1975 abolished the fixed-rate commission. The rule is much more complex than generally thought, but the main fallout of the new rule was that dealers were free to charge lower commissions to customers in order to bring them through the door. In essence, the rule fully deregulated the part of the brokerage industry that required fixed commissions. The change had such a momentous effect that is built known in financial history as May Day.
First Computer Tool for Portfolio Management
A major discount brokerage firm introduced the world’s first computer-based tool in 1984 that allowed individuals to manage their portfolios via a DOS-based program. As years passed, the program was upgraded and copied by virtually every major financial institution. The result was that the door was opened to 100 percent automated investment strategies. Those early, DOS programs are the true ancestors of modern risk-limiting apps and sophisticated technical analysis tools.
The 1987 Crash
After the market crash of 1987, government regulators realized that many professional brokers had contributed to the mess by refusing to accept orders from clients who were calling them over the phone. Customers who couldn’t reach a live human to place an order were out of luck. After that fiasco, regulations were introduced that created automated transactions. From that year, individuals did not have to speak with a person to place an order to purchase or sell a security.
First Online Firm
Some say the real birth of the modern way of doing things came about when E-Trade introduced the first online trading firm that was completely open to the public. The rapid growth, both in terms of users and revenue, that this new kind of company started, was the direct cause of the subsequent spread of the website-based securities buying and selling.
Decimal Pricing
The advent of decimal pricing for all publicly offered shares was a subtle but powerful agent in the growth of computer-based trading. This simple change allowed for easy of digitization not only of prices but also analytical tools that used prices as their core mathematical components. Within a year, the NYSE volume of shares traded hit the 2 billion mark. Six years later, that number doubled to 4 billion, representing the most rapid increase in activity the NYSE had ever experienced. The first two decades of the 2000’s saw more growth, automation, and more individuals taking part in the trading of financial instruments of all kinds.
