3-minute article

The rise of computerized trading

It's likely your clients have a certain image of the stock market — one where traders use a phone to place an order, and a scrum of men in jackets scream prices back and forth in a trading pit. These clients may not realize that the reality of trading today looks much different.

While explaining the ins and outs of how a trade gets executed may be too granular for most clients, it can be important to explain to them, at a high level, the way technology has revolutionized trading and the role that algorithms and artificial intelligence play. Here are two items to point out.

From Wall Street to Mahwah
The New York Stock Exchange is an investing icon — it's synonymous with Wall Street and floor traders. But today, just 35 firms have a presence on the trading floor. That's because in 2010, the NYSE moved the bulk of its operations to a computer warehouse in Mahwah, New Jersey, a fact many on Main Street aren't aware of.

These computers are handling an increasing number of trades, which the NYSE hoped would make trading more efficient. Computers are able to make markets (match buyers and sellers) at a much faster rate than floor traders.

If this seems intimidating to clients, remind them that computerized trades, based on sets of rules called algorithms, have been around since the 1980s. And the computer revolution is already pretty well established. As early as 2013, an estimated 70% of trades were electronic. Sharing this statistic can help terms like "algorithmic trading" feel less daunting.

Circuit breakers
As trading becomes more electronic, and the sheer volume of trades increases, exchanges have created circuit breakers to protect investors.

The "Flash Crash" can be a helpful example to use with clients, since it was a highly publicized misstep. Addressing how exchanges have taken steps to prevent a similar incident may help ease any concerns.

In May 2010, there was a roughly 30-minute market crash totaling a trillion dollars. The causes of this crash were complex, but the effects were amplified because trades took place in milliseconds.

To combat this in the future, stock exchanges implemented circuit breakers or trading curbs that kick in if a stock (or index) falls more than a certain amount in a certain period of time. These circuit breakers are updated regularly to help prevent panic selling.

Focusing on the advantages of computerized trading and systems in place for protection can help your clients feel more comfortable with their new view of the stock market. With time, they may start to realize that the technology driving the markets can ultimately help them manage their money.

Athene knows this, and is focused on staying at the forefront of innovation. Our new all-equity indices allow you to tap into the power of new technology with the same security you've come to expect from an Athene annuity.

Two things you can do today:

  1. Ask your clients what they know about the stock market: Are they aware of the shift from floor-based trading to computerized markets?
  2. Discuss how automation is nothing new, and the various steps exchanges have taken to protect peoples' money.

This information is brought to you by Athene — where innovative annuity solutions are powered by unconventional thinking.