Skillsfirst Level 5 Diploma in Financial Trading (RQF) - Module 1 - Trading Introduction
Skillsfirst Level 5 Diploma in Financial Trading (RQF) - Module 2 - Financial Products
Skillsfirst Level 5 Diploma in Financial Trading (RQF) - Module 3 - Economic Principles
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MODERN FINANCIAL MARKETS – ELECTRONIC MARKETS

Historically, trading in all its forms took place as a physical, face-to-face interaction between buyers and sellers – and this continued to be the case within the global financial markets until relatively recently. However, the introduction of modern communication and information technology systems soon revolutionised the ways in which traders went about their daily business, and led to the creation of the modern global financial trading system we see today.

In 1971, the NASDAQ became the world’s first trading exchange to offer an electronic bulletin board through which traders could instantly access the latest market prices for various US stocks and equities. However, it wasn’t until 1992 that the CME offered Globex – the world’s first complete electronic trading platform which allowed traders not only to access the latest prices but also to trade them in a wide variety of markets including fixed income, commodities and FX. So although a relatively recent development, electronic trading has completely changed the world of trading. By referring to the six basic functions of a market mentioned earlier within this module, we see that electronic trading has had the following wide-ranging benefits:

With greater numbers of market participants being involved in more markets than ever before, it has never been easier for financial agents to transfer funds and assets between themselves for investment or consumption purposes.

The implementation of modern technology means that greater numbers of buyers and sellers can interact more quickly in order to determine prices which are more accurate and more greatly reflect overall market consensus.

Modern communication networks ensure that information is disseminated much more quickly and widely than ever before, reducing market inefficiencies which may occur as a result of asymmetric market information being possessed by traders.

Electronic trading has ensured that the creation and maintenance of new markets has never been easier, enabling exponential growth in the number of trading exchanges and instruments which allow participants to share risk between themselves.

With electronic trading massively lowering barriers of entry, greater numbers of market participants are able to trade more products than ever before – resulting in markets which offer more depth and less price slippage for trade execution.

Electronic straight-through-processing (STP) systems mean that more transactions can be processed more quickly than ever before, resulting in lower transactions costs for all market participants. But together with these advantages, electronic trading has also completely revolutionised the ways in which buyers and sellers interact as a result of the trading process – a revolution which led to the rise of so-called algorithmic trading.

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