How innovation has radically changed financial markets

When I was growing up there seemed to be no better job in the world than being a stock market trader

When I was growing up there seemed to be no better job in the world than being a stock market trader - those are the guys on Wall Street who scream at each other and wave their hands furiously as part of their daily tasks.

But today, technology advancement has all but eliminated the stock market trader.

High frequency trading algorithms and giant super computers are far more efficient at buying and selling large volumes of share script and these days, razor-thin margins have pushed most of the industry into passive ETF investments rather than active trading.

The NYSE trading floor is a thing of the past; the JSE floor disappeared decades ago.

How did this happen and where is the industry going in the future?

  1. Your customers are looking for win / win

People don't want to feel ripped off - so when better, cheaper investment products started to enter the market thanks to advances in technology - the industry itself was forced to change. Big banker bonuses disappeared and customers started getting a better deal. The days of fancy corporate offices and private jets for bankers are coming to an end.

2. Quantitative financial engineering always ends in tears

In order to shave off more margin from competitors, banks have progressively relied on increasingly complex algorithms and formulas to keep their competitive edge. In time the complexity of these systems always backfire on the bank - ending in disaster for the firms and the clients. The future will demand that investing revert back to its origins as a utility financial service. There will be little tolerance or trust in entities that promise gains by 'out-gaming the system'.

3. When it comes to money - people still want to talk to somebody

As sterile as money is, when it comes to the management of it - people still want to sit in somebody's office and have a cup of tea with them while having a chat about their portfolio. The efficiency of modern technology has undoubtedly offered the finance industry more time to do just that.