When the pandemic hit, many people forced to work from home indulged heavily in trading shares online. This was a result of the boredom and stimulus injected into society by various economic heads.
With commission fees charged by brokers ranging from low to none and with many online trading platforms to choose from, you were spoilt for choice. Traders can often decide which platform to choose based on their preference. Big brokerages recorded surges in the number of average daily traders.
With the rise of online trading platforms, more ordinary people are investing in stocks and ETFs. What was a mainstay of big banks, Hedge funds, and the few billionaire elite is now accessible to the masses through these platforms. Below we look at how share trading platforms have democratized finance
Before the development of these new trading platforms, the process of buying securities was tedious and unattractive. The lack of accessibility of securities was an issue that you as an investor had to deal with when you decided to acquire a security.
To acquire a security, you had to arrange a meeting with a known broker, go through throngs of paperwork and only after verification could you indulge in the buying and selling of securities.
Orders, when received, were not executed instantaneously, usually with a lag resulting in a slight change in the entry price or selling price contrary to what the investor expected. This was worse during panic days where everyone tried to act on a stock, often amplifying their losses.
With the rise of these online platforms, investing is much more accessible to retail investors because it is now only a few clicks away. The internet and the development of these trading platforms have increased convenience for you, the investor, with instantaneous execution of orders.
Convenience is further ensured by round the clock access to one’s account, enabling depositing and withdrawing funds. Trading systems are also accessible to the investor 24/7. Through these share trading platforms, you can get adequate and good returns by buying and selling securities.
Initial investment fees for you to actively buy and sell securities in the past were relatively high. This meant that you required large sums of money to build positions in your selected or preferred security as a retail investor to participate in the market.
Brokerage firms have greatly democratized finance, making it available to the retail investor by introducing micro and standard accounts to the fold allowing investors to deal in micro and mini lots. With these accounts, one can actively participate in the financial markets with as little as 1$.
These accounts also offer increased leverage to ratios of up to 1:400, allowing retail traders to enter into large positions and control large amounts of capital with their available balance. This amplifies the risk as well as the reward attracting new investors and retail traders to their platforms to access this leverage.
The zero-commission model is one of the factors that greatly democratized finance. With companies like Robin Hood coming up and adopting this model and then popularizing it, the standard was already set for future brokerage firms.
This move of zero commissions was extremely popular, and it forced other major brokerages to revise their fee commissions. These often led to the slashing of these commissions to half or complete abolition in a bid to maintain competition.
The elimination of commission fees required when purchasing securities was an active factor that facilitated the increase in new investors to tunes of up to 13 million users in under seven years for the Robin Hood platform.
Withdrawal, depositing, and inactivity fees have also been waivered at most trading platforms. This leaves the spreads as the platforms’ source of income. However, these too have come under competition, forcing trading platforms to narrow their spreads in a bid to attract more clients.
Trading platforms forsaking profits in the name of fees for volumes of activity has greatly enhanced the democratization of finance with more people willing to join in trade and invest in securities.
New technology aiding in the acquisition of securities
Data that was the mainstay of established firms are now available to the general public for free or nominal. Applications using programming interfaces that provide information and data to traders that request this real time data have been incorporated into online platforms.
This breakdown of the information barrier has enabled investors to take more of an active role in managing their portfolio. In return, this makes the investors feel more at ease and in line with the general market as this abundance of data guides them into making better and more accurate investment decisions.
Machine learning, the use of artificial intelligence, and trading robots has also increased the decentralization of finance. With these new technologies relying on data to make the decisions, more and more novice investors rely on them.
Due to the machines’ insusceptibility to bias and wide search range allowing it to process information on a wide number of securities and consistency, more investors are joining online trading platforms that offer these services.
These trading technologies remove the burden of decision-making upon you, the investor, and they churn out pretty decent results due to intelligent decision-making. These tools are offered by trading platforms at a nominal fee, increasing the number of investors joining the platforms to take advantage them.
Platforms also allow for the copying or mirroring of a professional’s portfolio and investment decisions; this happens at a commission to the professional trader and at an extra cost for the one who enlists this service. The mirroring effect enables investors to copy traders they view as superior in investment technique and style, garnering superior results and easing anxiety over managing their portfolio.
Share trading platforms have greatly democratized finance. Essentially what was a rich man’s sport is now accessible to millions of people who can make a living off it. With advancements in technology and competition among brokers, financial democratization will only go further, ensuring that financial markets are accessible to everyone.