What Are the Effects of Online Investing?
The world of personal investing has been reshaped by online investing. The effects of online investing on the market have shown up in regulations to prevent market panics and in changing attitudes among small investors about stock brokers.
Other People Are Reading
-
Origins
-
By the 1980s, individual brokers were using fax machines and modems to make trades without direct human intervention. These automatic trading systems contributed to Black Tuesday, a serious stock market crash, in October 1987.
Rise of NASDAQ
-
Faster machine-to-machine trades gave rise to NASDAQ. A scandal rooted in collusion and information delay in 1994 resulted in the SEC regulating NASDAQ in ways that opened the door to non-brokers making direct online trades.
-
Rise of Discount Brokerages
-
Direct online investing created online-only discount brokerage firms, such as Scott-Trade and Ameritrade, which allow small investors to make buy and sell orders in a few seconds with an Internet connection, cutting out the broker's commission. Indirectly, it has encouraged a "day-trader in his spare time" mentality among small investors.
Loss of Broker Information Services
-
The research that used to be done by brokers on commission is now being done by subscription newsletters. The results have increased risks for small investors, as the newsletter's revenue stream comes from subscriptions, not the direct success of its stock recommendations.
Regulatory Responses
-
Black Tuesday caused the SEC to mandate the ability to shut down all trading when the market hits certain parameters. Online trading has caused numerous suspensions of trading, sometimes for hours, sometimes for the rest of the day, to stop panic selling.
-
References
- Photo Credit money image by cherie from Fotolia.com
