The Internet is certainly a disruptive force – it has change the way we communicate, it has change the way we do business, and guess what – it has changed the way we invest. A lot of people focus on the fact that we’re more connected than ever, that it’s easier than ever to listen and find music, books and movies but the truth is, the business world probably had the most to gain from this particular technology.
The buying and selling of products has reached a whole new level, and all sorts of methods that have made communication easier raised the stakes for local businesses to change the way they think about investments. “I believe in capitalism” said Ken Fisher, Fisher Investments, and with the Internet era, the investment world has seen the best of capitalism.
One interesting fact, an interview from 1992 in Money Magazine was focusing on how brokers were able to gain as much as %2.5 for each trade they did. That was an incredible gain, especially if we’re discussing about large shares. Trading itself is partially what it used to be – meaning that essentially it involves the same series of actions, but then again, the Internet managed to change the edge on that as well.
For example, trade information can easily be sent over secured internet connections. And then we touch the subject of high-frequency traders which in time, has gained a lot of controversy by bringing a feeling of instability to the stock market. By making the stock market more volatile, investing and trading has become a harder trick to pull – as investors would call it.
There’s also a good side of high frequency trading – reducing bid-ask spreads created a spread down to pennies – which is far different from the way it used to be in the past. Now, let’s go a bit through the benefits of the changes generated by the Internet in the investment world.
1.) Transparency – Since the Internet is a way of visualizing data from all over the world, one can easily imagine that investors anywhere can now analyze information and generate their own ideas in regards to price securities – and that obviously brings a lovely change for most. Full-service brokers used to charge their own prices for these types of services before the Internet era, because their customers just didn’t know better. Nowadays, with a little know-how and a little Internet, one can figure it out on their own.
2.) Disintermediation – One can imagine that this is a direct consequence of transparency. It’s not about the broker company’s way anymore – it’s about the investor’s way. Period. And with a complete lack of intermediates, the rate of success can be higher for professional investors. So let’s take the middle-man out of the picture for a change.