Information Technology & Stock Exchange: How They Function Together

by Modis on December 27, 2011

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Information technology has positively impacted countless industries by increasing efficiency and organization, which allows for more sophisticated processes and thus more productivity and advancement. The stock exchange isn’t an exception; it’s evolved along with information technology since it’s very dependent on computer data and calculation.

The New York Stock Exchange and the NASDAQ represent a massive part of the financial industry — buying and selling stocks. It’s a complicated process in which millions of people trade parts of ownership for different companies, and it’s so complex that some people don’t understand how it all breaks down, let alone fully comprehend how information technology plays a part.

The Basics

Before 1998, stock exchange generally consisted of people making deals and trading stocks on the floors. In today’s stock exchange environment, almost everything is handled through the use of computers. For example, one estimate from all the way back in 1999 showed 90% of the trades made at the NYSE were done electronically. Even when people are making the deals themselves, they use smartphones and portable computers to communicate with offices in order to make sound decisions.

Stock specialists are on the exchange floor, immersed in all of the action, but much of the process is automated, and billions of shares can be processed in one day. The stock market might not seem so computerized, but that’s because people have to be on the floor despite not necessarily making a lot of decisions, especially in the case of NASDAQ, which is highly automated.

On the most basic level, computers serve as a major foundation for the stock market because they record share ownership information on databases. If someone wants to purchase a stock, they don’t even have to go through a human representative to do it — often times, a person can submit an interest in purchasing a stock over the Internet, and the computer will act as the broker and try to find the cheapest price. It’s nearly impossible to find an aspect of the stock exchange not impacted by technology.

The Latest Technology

It’s already been mentioned that the automated stock system can process millions of shares in mere hours. Even more impressive are the superfast computers in use today, which can trade a stock in a millionth of a second. Capabilities like this point to the vital influence information technology has on the way the stock market functions — without this advanced computer technology, the current scale and speed at which the stock exchange operates today would be impossible.

In 2009, high-frequency trading became all the rage. According to The New York Times, very powerful computers began allowing high-frequency traders to send million of orders at unparalleled stock exchange speeds. Typical computers can’t compete with the speed, and humans don’t even stand a chance.

Aside from how stock experts are taking advantage of expanding information technology, they’re also trying to save money and consolidate in order to form better organization and cut extensive IT-related spending. The New York Stock Exchange recently announced a merger with Deutsche Borse, through which both exchanges hope to eliminate millions of dollars in operational and IT costs. Developments both in information technology itself and how information technology is used throughout the stock exchange industry are shaping the way stocks are traded on even the most basic level.

As information technology advances, the stock exchange infrastructure will grow more sophisticated and most likely will become more automated. The stock buying and selling process evolves along with developments in computer technology and usability, so it’s fairly certain that the stock market will continue to expand and reshape.

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