How Technology is Changing Wall Street

When I was in high school in the Dominican Republic, I know what I wanted to do, I wanted to become a Wall Street trader, like the ones in the movie Boiler Room. I did somehow ended in a Hedge Fund, albeit without becoming a millionaire like the guys did in Boiler Room. When I started working at Wall Street as a recent grad, I noted that things where really different from what I thought it would be. I worked at a fund which was an old school fund, meaning that it invested because based on the fundamentals, or the underlying business dynamics is was a good investment. Soon I realized that technology was changing Wall Street face.

Something that catched my eye while working at the hedge fund, was that the office right around the corner had a lot of computers and few employees. I soon realized that this was a High Frequency Trading Fund (HFT), which according to Investopedia, “High-frequency trading (HFT) is a program trading platform that uses powerful computers to transact a large number of orders at very fast speeds. It uses complex algorithms to analyze multiple markets and execute orders based on market conditions. Typically, the traders with the fastest execution speeds are more profitable than traders with slower execution speeds.”

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Soon I realized, that I was at the advent, even perhaps at an inflexion point, where technology and social media will dominate wall street and the trading landscape. Indeed, I do believe that technology in wall street will ultimately dominate jobs and I believe this already is happening. UBS had once the largest trading floor in Stamford, Connecticut. Today, this floor barely houses a couple of employees, which most probable will be relocated to another office.

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So what has happened in the trading world, well, those who haven’t turned to alternative investments such as cryptocurrencies, have more recently to passive investing, instead of investing in mutual funds, people are now investing in other assets, which is easier to understand for the simple investor.

Now more than ever, technology and social media are controlling how we invest. Before we would provide our excess capital to Wall Street, now Wall Street is at our fingertips. Now social media has dominated how we invest. Platforms that help us achieve this are platforms such as etoro. Etoro is a social media platform which how they describe, “Social trading is the utilization of user-generated content, and crowd-wisdom, for the act of online trading. Social trading sites provide their users with a variety of community-based tools in order to give them the information needed for making smarter investment and trading decisions. For example, a social trading platform would enable its users to see other users’ portfolios, read their news feeds, and look at their overall performance, to gain a better understanding of trading strategy.” Through this platform, common investors like you and me have the opportunity to copy others people investment strategies and invest on our own.

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Another platform that dominates the social media investing platforms is StockTwits. According to the company, “StockTwits streams consist of ideas, links, charts and other important financial data, summarized within 140 character messages. Users, which include analysts, media and investors of all types, as well as the public companies themselves, contribute to the stream. Investors, and others interested in stocks and markets, can easily follow individual stocks, specific contributors, as well as view the StockTwits stream across dozens of financial sites that integrate the stream including Yahoo! Finance, CNNMoney, Reuters, TheStreet.com, Bing.com and The Globe and Mail.” StockTwits is an amazing tool because it harnesses the power and technology of twitter with the knowledge of investors. This is an excellent tool for anyone out there who is looking for insightful information to invest. Most importantly, this platform provides information which would otherwise cost thousands of dollars all provided free.

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Now the most recent move in investing, which is sure to affect wall street traders as we know it, are trading Apps. These trading apps take out the guesswork for investors and provide an easy to use GUI and navigation to make the most of your trading. Some of these apps such as Acorns, take your spare change and invest the money how ever you decide your risk tolerance is, to more flexible apps such as Robin Hood which make trading “free” for those who have less money

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We are at the crossroads of changing dynamics in the investing world and the future will be social. Only time will tell which platform will succeed among the many offerings.

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Sources:

http://www.investopedia.com/terms/h/high-frequency-trading.asp

https://www.etoro.com/

https://www.acorns.com/

http://money.cnn.com/gallery/investing/2016/06/10/10-best-investing-apps/index.html

 

8 comments

  1. Interesting to read this now as Hong Kong just closed one of its most important trading floors. This is big in the tech investing and trading as you said. Apps like Robinhood came to disrupt the “old” ones like TD Ameritrade which bought Scottstrade or E-Trade. Both services are now decreasing their cost about 15-20% due to free trading on Robinhood.
    What I would ask myself is: How do you trust users in the service like etoro. I would try it just because its the new things but I am hesitant to trust blindly in the leaders in the social trading platform.

  2. sherricheng5 · ·

    Great post! This is another example of how technology and digital platforms are transforming and disrupting industries. Your blog post also reminded me of our guest speaker Lindsay Sutton and the app that John Hancock Financial Services is rolling out for personal finance/saving. It’s crazy to think that some jobs will become obsolete in a few years because of technological advancements. While apps can make trading easier and cheaper, I also agree with @cummingdiego about the issue of trust, and I wonder if there are biases in these apps. Also, do you think the future of Wall Street will also use AI?

  3. Catherine · ·

    There is undoubtedly a shift occurring in investing, thanks to disruptive technology and new cheap apps. I recently read an article predicting up to hundreds of thousands of jobs in the finance world being replaced by artificial intelligence and machines who can do it better. Very weird to see the UBS trading floor in Stamford example. I agree with @cummingdiego, in that I am a bit hesitant to trust a computer, that may not exactly know my investment needs and may not always get it right.

  4. kaitlinardiff · ·

    There’s definitely a shift occurring in the Wall Street world. As these companies realize that technology is the way to get ahead, they are on a hunt to poach tech talent. My dad’s friend used to work for a firm on Wall Street, but unfortunately one of their programmers one day wrote an infinite loop that uncontrollably spent all of the firm’s money, therefore rendering the company bankrupt and without a need for any employees. Some of his other friends have found their trading jobs to be replaced by computers and now unemployed. It’s scary to see that these finance skills that students work so hard to study may be easily learned by machines, therefore showing that the most important think to study is tech.

  5. Cool post! Acorns was actually the first tool that I used to start investing and it appealed to me mostly because I had little finance background but didn’t need to consult with a financial advisor to get started. Many of my friends who used to do day trading for a living have also moved away from that and created small businesses instead because they feel threatened. The threat of social media and technology on Wall Street and the financial services industry in general is very real and those that only understand how to use the algorithms will be replaced by financial techies that know how to program new algorithms.

  6. I have a couple friends who have tried using social media investing platforms that you mentioned, and I’m curious to know whether investing in stocks after having read the information available on applications like StockTwits are worthwhile. If information regarding specific stocks and investment recommendations are readily available to the public and the markets are efficient, would we be able to benefit from this information? If every social media investing platform was pitching a buy recommendation for a company that recently went public for example, and everybody acted on this information and went out to buy it, I would think the stock would become overvalued and soon drop in price as the true value is realized. It’s like trading based on a WSJ article announcing an M&A deal – theoretically, it’s too late to realize any gains. So how do these platforms stay in business and maintain their customer base? It would be very interesting to see the average returns of the users of the platforms. Great post.

  7. Yvette Zhou · ·

    Nice to see several investment tools here. I always want to check out investing platforms in U.S. Thanks for introducing! It seems technology has entered financial world for a long time, assisting financial activities including investments. The benefits of information technology are always fast and convenience. And I think the other advantage that IT brought to Wall Street is variety. Without those platform and tools, we may only get information from limited sources and this is not good for investments. Now we can make our decisions more wisely with more comprehensive information received, which makes the whole financial market more effective. I will definitely check out the platforms you have mentioned! Great post!

  8. One of my students did a presentation on StockTwits about 5 years ago. Pleasantly surprised to see they’re still around!

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