How Will the Emergence of the Hybrid Market Affect Investors?

The hybrid market allows for a combination of electronic trading and traditional floor trading with a physical broker. Historically, all trading was done by a broker present on the exchange floor. Today, many trades can take place electronically, but it depends on the rules of the particular exchange. Notably, the New York Stock Exchange has even moved to a hybrid system. The emergence and predominance of this system will change the way investors interact with brokers and the general market in a number of ways.

Interaction with Brokers

As brokers have less of a presence on the trading floor, they will begin stepping behind their computer screens increasingly more often. The old image of the broker dressed in a business suit throwing tickets around the market floor will begin to disappear. Brokers will be able to set up shop nearly anywhere, moving the financial center farther away from Wall Street. For investors, this is generally a good thing. Brokers can become more accessible through modern methods like email and Internet chat interfaces. 

Efficient Markets

Perhaps one of the biggest changes that will occur when the time between order and trade grows smaller is an alteration of the efficient market hypothesis. This model argues that the available information on a security determines when and how the security will trade. Until recently, that available information was always given to investors on a time delay. With electronic trades, though, there is a fraction of a second delay in time between the order to trade and the actual trade. This means, at any given moment, the market is more up-to-date with trade orders. Ultimately, common investors will have access to more information that was previously only available to financial market professionals.

Reliance on Fast Systems

Since this fraction of a second trading is going to make a large impact on the market as a whole, the business of trading will become, more than ever, a business of speed. The faster a broker can execute a trade, the more likely he or she is to capitalize on benefits prior to the remainder of the market finding those same benefits. A broker, then, is only limited by the speed of the computer system in front of him. Many investors are surprised to learn that one-thousandth of a second can mean the difference between huge profits and no gains at all. The more brokers rely on speed, the more their clients will also have to be keyed into the importance of timeliness in the hybrid market.

Derivatives Heavy Trading

When speed becomes an advantage in trading, good investments are only one option from which to profit. The other option is derivatives trading, which becomes far more profitable when trades can happen very, very quickly. Options, futures, interest rate swaps and other derivatives have only evolved as successful trading strategies within the past few decades. They will continue to be a predominant method exploited by large trading groups with speedy systems in order to turn a fast profit. Manipulating the market rather than investing in it will be the choice way to make a dollar for some investors.

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