Crypto Embracing Stock Market’s Lessons on Technological Inclusion
The financial services industry has long been a proponent of technology use. However, when it came to retail offerings, the best technology was often kept in the hands of institutional users. Eventually, slowly but surely, the internet changed everything.
From traders' method of accessing the markets to the speed of execution and charting, the late 90's and early 2000's were years of dramatic changes in stock market participation. First, inclusivity improved by an order of magnitude, leading to a dramatic rise in the number of day traders lured in by discount brokerage rates and greater accessibility.
While the playing field was still tilted in favor of financial services giants and large funds that invested heavily to maintain a technological edge, the gap gradually closed as these technologies filtered down to the retail level. Moreover, the technology itself helped improve market conditions and the accessibility of value-added services alike.
Paul Barroso, the Co-founder & CEO of Atani, remarked, “There are a lot of instances in which trading, portfolio management, technical analysis or tax reporting technology that was once limited to institutions is being filtered down to retail clients. For example, take high-frequency trading technologies (HFT), that have now gone mainstream and are leveraged for arbitrage trading. That has a net positive impact on the markets, as it increases liquidity and reduces spreads and slippage.”
Stock traders can now build their own algorithms with no coding knowledge, employ advanced technical analysis tools directly on charts, and filter and sort through trading opportunities based on pre-defined criteria. Moreover, they have access to multiple trading venues. The point is, although technology in its earlier years was the big differentiator, it has since been transformed into the great equalizer, gradually improving inclusivity while helping level a very lopsided playing field.
Money management tools are a prescient example of this progress. The rollout of services like copy-trading and robo-advisory has brought asset management and portfolio management to the public instead of solely serving the needs of high net worth individuals. Even research has been fundamentally democratized by technology. For instance, Reddit has brought us the world’s largest decentralized hedge fund and an abundance of research and analysis that was once relegated to the institutional investment domain alone.
Cryptocurrency As The Great Trading Equalizer
In many ways, cryptocurrency builds on this technological progress. At its core, the goal of the earliest cryptocurrencies was greater financial inclusivity, whether by banking the unbanked or by reducing the presence of gatekeepers that translated to higher transaction costs. (See Bitcoin Stock Comparison on TipRanks)
Sure, cryptocurrency trading, in particular, has a long way to go, but even now, it is progressing at a much faster pace than stock market trading. The strongest example of this point is the abundance of decentralized exchanges (DEXs) and automated-market-maker (AMM) platforms driving the DeFi revolution.
For traders, the opportunity to access a purely decentralized trading environment has numerous advantages. Besides for the fee component, the tools available have never been more sophisticated. Moreover, yield farming, staking, and lending in these decentralized environments provide more democratized opportunities for ordinary investors than at any time in history.
Even centralized crypto platforms are highly performant, and regularly expand their use of technology. Traders can now view the order book for depth, akin to the Nasdaq Level II service available to institutions and stock trading professionals for years. In addition to charting, many platforms feature embedded news options, helping more participants gain a fundamental look at the market in real-time.
Furthermore, institutional innovation is a key driver of a strong retail user experience in cryptocurrencies. Tomer Niv, the Director of Global Crypto Solutions at eToro, echoes this point, “Institutional trading technology can be divided into custody infrastructure, smart execution engines and supporting data analytics. I can say that recent improvements in all of those three categories have a direct contribution to the quality of the services that end-clients receive from retail investment platforms.”
Niv adds, “Experiences at the institutional level have positively influenced storage solutions for cryptoassets for all users, including retail...Smart execution engines provide better liquidity and access to the entire crypto market which translates to better spreads on retail platforms, and supporting data analytics enable the retail platforms to implement machine learning algorithms to optimize costs and eventually also reduce prices for the retail clients.”
Beyond these technological advances, users can implement automated strategies via API connections with their favorite exchanges. The exchanges themselves are breaking down barriers and reducing friction in their own right, even so far as automating KYC and AML practices that are still sometimes handled offline by stock market brokers.
With the rise of blockchain prediction markets alongside the accelerated use of machine learning and artificial intelligence, the industry is always exploring new and unique ways of delivering added value for crypto traders.
Although technology can be viewed as a driver of inequality, technology has proven to be the greatest equalizer in generations when it comes to trading. By largely eschewing the two-tiered structure that dominated the stock market for years, cryptocurrency is a potent force for democratization in a way that outpaces innovation in more established markets.
With a bright future ahead and development talent eager to carve out a place in this new trading paradigm, the technology revolution that started in stock trading is merely entering a new phase that will genuinely create more equal opportunities for all stakeholders and participants.
Disclosure: Reuben Jackson held no position in any of the companies mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.