5 Things That Have Changed Our Investment Habits
The following is a guest post from Alexander of Daytradingz.com. Alexander started investing back in 1999, and today he is still as fascinated by the financial markets as he was in the very beginning. In 2016, he launched his blog to share his experiences with short-term investments with his readers and to reveal insights regarding the products and services in this business.
More than 416 years ago, on March 20th, 1602, the “Vereenigde Oost-Indian Compagnie“ (VOC) was founded in Amsterdam. The trading company was an amalgamation of Amsterdam spice merchants. This is historically considered to be the birth of the stock market.
Since then much has changed.
Today, it goes without saying that banking transactions are conducted online, that analytics are based on freely available information and concluded with the help of modern trading tools.
Technologies have changed not only the financial world but also our lives. Especially during the last 20 years, technological progress has brought about changes that were partly unthinkable at the turn of the millennium.
Who would have thought about cryptocurrencies or blockchain back then?
Let‘s travel back in time with a brief look at the most significant changes in the financial investing world over the past 20 years.
From the introduction of electronic stock exchanges and high-frequency trading to cryptocurrencies such as Bitcoin, Dash, and Ripple.
In 1971, the first all-electronic stock exchange named NASDAQ was founded by the National Association of Securities Dealers. The title NASDAQ is the abbreviation for National Association of Securities Dealers Automated Quotations.
Due to the fully electronic processing of the orders, the correct execution of all orders could realized with unprecedented speed even when there was significantly higher trading volumes.
The electronic processing of transactions has also meant that they can be monitored more closely. Regulators such as the SEC use the data to analyze and check for potential irregularities.
Incidentally, even high-frequency trading would be unthinkable without electronic exchanges. For purchases and sales of securities within fractions of a second are only possible thanks to the integrated technologies behind the stock market.
Also, even with today‘s High-Frequency Trading (HFT) system being the norm, you might remember May 6th, 2010, when a “flash crash“ triggered by HFT systems led to an uncontrolled collapse of the markets with an entirely unusual market recovery subsequently thereafter.
While HFT systems are still criticized, the automated and especially computer-aided trading is still on the rise and will continue to gain ground.
While previously a private investor used to have to call his advisor to place an order, today he can buy and sell orders from anywhere in the world.
The electronic stock exchanges laid the foundation for this. Technological progress with high-performance computer systems, fast Internet connections, and customer-friendly trading platforms make online trading a matter of course today.
Personal contact between the investor and his advisor is no longer common these days. And day trading, too, became possible only in connection with the power and access to online trading.
Being able to trade globally and around the clock on various stock exchanges has become particularly attractive due to speedy order execution, low fees, and advanced trading platforms.
More and more providers are making real-time price information available to their customers. This enables them to enter orders into the system within the shortest possible time, route them to the stock market and receive an execution confirmation immediately after an order has been filled.
Mobile Investing and Trading
The first mobile phones came into use in the 1970s. However, only with the introduction of smartphones and user-friendly displays the foundation for mobile trading was laid.
Instead of the previously common personal conversation between an advisor and his customer followed by the placing of an order by a stationary computer in the workplace or at home, mobile banking and mobile trading have become standard procedure.
In large part thanks to the mobile investment and banking apps provided by almost all brokers and financial institutions.
Calling up current stock prices via your smartphone, placing buy and sell orders and clarifying questions using a chatbot is the standard nowadays.
Managing one‘s personal finances online has also become more accessible and efficient thanks to software tools like Mint and Quicken. Instead of tracking earnings and expenses using Microsoft Excel today the use of these same software tools allows all accounts to be linked and categorized. In a matter of a few clicks, income and expenses are transparent and organized.
There are even apps, such as the Robinhood app, designed for mobile trading.
In addition, online trading and trading via app also offers an advantage in terms of fee structure. Because online brokers provide more attractive commissions than a local bank, no matter whether the investments take place via a computer, a tablet or a mobile app.
Related Post: In addition to Robinhood, here are 5 other investing apps for beginners.
Social media has become much more important to investors. And this is not due to the public owning shares of the largest social media companies.
Rather because a Tweet from an individual can lead to substantial price turbulence for individual values, at least for a short time. Protecting oneself from resulting volatility is almost impossible.
Also, social media has helped establish communities that serve almost all financial topics comprehensively. Nevertheless, every investor is well advised to exercise appropriate caution. This is especially true for buy and sell recommendations posted on social networks.
New Forms Of Investment
Robo-Advisors, cryptocurrencies, and trading systems based on artificial intelligence are the latest forms of investment. Gone are the days when individual values were analyzed and traded. Many investors now prefer to have their capital managed by robo-advisors.
These robos invest primarily in exchange-traded funds (ETFs) according to predefined parameters, often rebalancing asset allocation automatically as well.
While the use of robo-advisors becomes increasingly popular within the long-term investment, cryptocurrencies such as Bitcoin have been particularly popular in 2016 and 2017.
Now prices are mostly down again by 50% and well below their former highs. There is still disagreement over whether the blockchain-based currencies have a future, or are just a short-lived trend.
Fact is that current technologies make the unthinkable possible and fully automatic trading systems have been on the rise for some time. However, while the basic logic used to be to program robust trading algorithms which then resulted in an order being placed when the defined event occurred, artificial intelligence-based systems are becoming increasingly popular.
One reason for this is that the computer takes over the entire analysis activity and even buys and sells fully automatically.
To give an example, tools such as Trade Ideas allow investors to have computer-aided trading strategies evaluated and to scan the market full-time for each setup. When the respective event occurs, it can either be displayed in a list or a buy or sell order can be generated automatically using the Broker Connection API.
There have been many changes to the financial world, especially during the last ten years. Some of them are obvious, and others are more hidden. For long-term investors, the reduction of local banks and service providers associated with digitization is likely to be the most noticeable change.
Personally, I still prefer to have my checking account and long-term investment account with a local bank. Here I have the opportunity, if necessary, to look for a personal conversation, without having to communicate online with a chatbot.
For my short-term trading, however, I do appreciate being able to benefit from the latest technical innovations.
But ultimately each of us have their own ideas and expectations. What matters most is not to get nervous by technological changes. Instead, we are all challenged to make targeted and foresighted adaptations.
If, for example, you are planning to change your online broker, you should keep an eye on the benefits in addition to the costs and not be guided by a one-time bonus. So if you are looking for the best online stock broker, you should first think about what matters to you and what services you’d expect from the new provider.
Also, it makes sense to keep an eye on the overall costs and plan for the long term. This takes some time but always pays off in the long run.
We will always be challenged to weigh up opportunities and risks and to plan future investments with a common sense mindset.
Advertising certainly promises us that every product and service is beneficial. However, the responsibility to make things great is ours!
In Closing…Changed Our Investment Habits
First off, a big thanks to Alexander of Daytradingz.com for penning this insightful post on the different elements that have changed our investment habits.
The digital world, powers of FinTech and shifting markets globally have clearly altered the investing world and habits of both everyday investors and organizations. Accessibility to trading platforms and the distribution of information are two that have definitely played a role in my own investing journey.
It will be interesting to see where the markets, products and services go in the coming years.
How have your personal investment habits shifted over the last 5 years? 10 years?
Have you experienced any negative drawbacks from any of the recent changes? What about positive?
Let me know in the comments below.
Here are some other posts to help you take control of your money and life:
- Investing Apps For Beginners, Compound Interest & Getting Started Early
- 15 Smart Money Moves You Can (Easily) Make This Month
- Best Personal Finance Podcasts – 30+ Money, Investing And Side Hustle Shows
- Financial Advice From 29 Personal Finance Bloggers: A Memo To The Next Generation
- Building Good Money Habits – Make Your Own Money Momentum
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