Over the years the structure of the market has changed as new vehicles and technology have emerged. Some of the changes have been welcomed while others have caused issues. Remember the Flash Crash in 2010? It was caused by a bad trade followed by “sell” algorithms kicking in which exacerbated the drawdown. Below we detail both the new Investment vehicles which have emerged as well as some technological changes that have occurred over the years.
- Investment vehicles: New investment vehicles such as exchange traded funds, or ETF’s, have emerged and changed the investing landscape to some degree. When you buy an ETF, that ETF goes out into the market and buys all of the securities in the particular index that it tracks in same proportion. This provides investors with easy access at competitive prices.
- Technology: Technology advancement comes in the way news is viewed/transmitted and how we trade instruments. News flow is now continuous and almost instantaneous. On the trading side, algorithms have come along and changed how we trade. While algorithms may have been implemented by humans in the past, they are now operated by computers in mere fractions of a second.
While both of these changes have resulted in lower cost and easier access to the market, the technology behind them can present some challenges which may be unforeseen.
