What is electronic trading?
This refers to a method of trading securities, financial derivatives or foreign exchange electronically. Both buyers and sellers use the internet to connect to a trading platform such as an exchange-based system or electronic communication network (ECN).
Key takeaways
Electronic trading (e-trading) is a method of trading securities, financial derivatives, or foreign exchange electronically using internet-connected platforms such as exchange-based systems or electronic communication networks.
Electronic trading gained popularity in the 1990s due to technological advances and is now rapidly replacing traditional trading methods such as physical trading floors and phone trading.
The main advantages of electronic trading include near-instantaneous transaction speeds without paper document delays, lower costs for brokers resulting in smaller commissions for investors, and global accessibility.
However, electronic trading systems can be vulnerable to IT glitches and technical disruptions, which is an inherent risk of technology-dependent trading methods.
Where have you heard about electronic trading?
Also known as e-trading, such methods grew in popularity in the 1990s thanks to technological advances, and are now rapidly taking over from more traditional methods such as physical trading floors and phone trading.
What you need to know about electronic trading...
One of the main advantages of trading online is the speed of transactions. Instruments can be bought and sold almost instantaneously, with no delays caused by paper copies of documents being filed. The growth of electronic trading has also meant lower costs for many third-party brokers, with savings often being passed on to investors in the form of smaller commissions. The internet has also made trading accessible to far more people across the world than traditional methods. However, as with most modern technology, IT glitches can occur.
Find out more about electronic trading...
Nasdaq uses an exchange-based system to facilitate electronic trading.