In finance, an electronic trading platform, also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a

financial intermediary A financial intermediary is an institution or individual that serves as a " middleman" among diverse parties in order to facilitate financial transactions. Common types include commercial banks, investment banks, stockbrokers, insurance and pe ...

. Various financial products can be traded by the trading platform, over a communication network with a financial intermediary or directly between the participants or members of the trading platform. This includes products such as

stock Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the Share (finance), shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporatio ...

s, bonds,

currencies A currency is a standardization of money in any form, in use or currency in circulation, circulation as a medium of exchange, for example banknotes and coins. A more general definition is that a currency is a ''system of money'' in common use wi ...

commodities In economics, a commodity is an economic good, usually a resource, that specifically has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. Th ...

, derivatives and others, with a financial intermediary such as brokers,

market maker A market maker or liquidity provider is a company or an individual that quotes both a buy and a sell price in a tradable asset held in inventory, hoping to make a profit on the difference, which is called the ''bid–ask spread'' or ''turn.'' Thi ...

investment bank Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

s or

stock exchange A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for ...

s. Such platforms allow electronic trading to be carried out by users from any location and are in contrast to traditional floor trading using

open outcry Open outcry is a method of communication between professionals on a stock exchange or futures exchange, typically on a trading floor. It involves shouting and the use of Hand signaling (stock market), hand signals to transfer information pri ...

and telephone-based trading. Sometimes the term trading platform is also used in reference to the trading software alone. Electronic trading platforms typically stream live market prices on which users can trade and may provide additional trading tools, such as charting packages, news feeds and account management functions. Some platforms have been specifically designed to allow individuals to gain access to financial markets that could formerly only be accessed by specialist trading firms using direct market access. They may also be designed to automatically trade specific strategies based on

technical analysis In finance, technical analysis is an analysis methodology for analysing and forecasting the direction of prices through the study of past market data, primarily price and volume. As a type of active management, it stands in contradiction to ...

or to do

high-frequency trading High-frequency trading (HFT) is a type of algorithmic trading in finance characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools.Lin, Tom C. W. " ...

. Electronic trading platforms are usually mobile-friendly and available for Windows, Mac, Linux, iOS and Android, making market entry easier and helping with the surge in retail investing.

Etymology

The term "trading platform" is generally used to avoid confusion with " trading system". The latter term usually refers to a trading method or strategy rather than the computer system used to execute orders. A platform is a type of computing system or operating environment such as a database or other specific software.

Historic development

Financial transactions were handled manually by brokers or directly by counterparties until the 1970s. From then, electronic trading platforms were introduced. These platforms and trading venues included

electronic communication network An electronic communication network (ECN) is a type of computerized forum or network that facilitates the trading of financial products outside traditional stock exchanges. An ECN is generally an electronic system accessed by an electronic trad ...

alternative trading system Alternative trading system (ATS) is a US and Canadian regulatory term for a non-exchange trading venue that matches buyers and sellers to find counterparties for transactions. Alternative trading systems are typically regulated as broker-dealers r ...

s and "dark pools". The first electronic trading platforms were typically associated with stock exchanges and allowed brokers to place orders remotely using private dedicated networks and

dumb terminal A computer terminal is an electronic or electromechanical hardware device that can be used for entering data into, and transcribing data from, a computer or a computing system. Most early computers only had a front panel to input or display ...

s. Early systems would not always provide live streaming prices and instead allowed brokers or clients to place an order which would be confirmed some time later; these were known as "

request for quote A Request for Quote (RfQ) is a financial term for certain way to ask a bank for an offer of a given financial instrument from a bank, made available by so-called Approved Publication Arrangement (APA) by the stock markets itself or by Financial dat ...

" systems. In 1971,

Nasdaq The Nasdaq Stock Market (; National Association of Securities Dealers Automated Quotations) is an American stock exchange based in New York City. It is the most active stock trading venue in the U.S. by volume, and ranked second on the list ...

was created by the

National Association of Securities Dealers The Financial Industry Regulatory Authority (FINRA) is a private American corporation that acts as a self-regulatory organization (SRO) that regulates member brokerage firms and exchange markets. FINRA is the successor to the National Associati ...

and operated entirely electronically on a computer network. Nasdaq was opened on 8 February 1971. It rapidly gained popularity and by 1992, it accounted for 42% of trade volume in the US. With the advent of electronic financial markets, electronic trading platforms were also soon launched. In 1992,

Globex The Chicago Mercantile Exchange (CME) (often called "the Chicago Merc", or "the Merc") is an American derivatives marketplace based in Chicago and located at 20 S. Wacker Drive. The CME was founded in 1898 as the Chicago Butter and Egg Board, ...

became the first electronic trading platform to reach the market.

E-Trade E*TRADE is an investment brokerage and electronic trading platform that operates as a subsidiary of Morgan Stanley. History In 1982, physicist William A. Porter and Bernard A. Newcomb founded TradePlus in Palo Alto, California, with $15,00 ...

, a company that started as an online brokerage service, soon also launched its own platform aimed at the consumer. These platforms rapidly gained popularity with E-Trade's growth rate at 9% per month in 1999. In the late 2000s, with the emergence of digital tools, a new generation of investment companies started to appear, which began to offer services to assist non-professional investors in trading. In 2007, a multi-asset investment company,

eToro eToro Group Ltd. is an Israel, Israeli multi-asset Investment management, investment and social trading company focused on providing Financial trading, financial services. eToro was founded in 2007 in Tel Aviv by Yoni Assia, Ronen Assia, and Da ...

, was founded, focusing on copy trading,

social trading Social trading is a form of investing that allows investors to observe the trading behavior of their peers and expert Trader (finance), traders. The primary objective is to follow their investment strategies using copy trading or mirror trading. S ...

, and other types of trading services. In 2017, the bitcoin exchange

Binance Binance Holdings Ltd., branded Binance, is the largest cryptocurrency exchange in terms of daily trading volume of cryptocurrencies. Binance was founded in 2017 by Changpeng Zhao, a developer who had previously created high-frequency trading ...

was founded. Trading systems evolved to allow for live streaming prices and near instant execution of orders as well as using the internet as the underlying network meaning that location became much less relevant. Some electronic trading platforms have built-in scripting tools and even

API An application programming interface (API) is a connection between computers or between computer programs. It is a type of software interface, offering a service to other pieces of software. A document or standard that describes how to build ...

s allowing traders to develop automatic or

algorithmic trading Algorithmic trading is a method of executing orders using automated pre-programmed trading instructions accounting for variables such as time, price, and volume. This type of trading attempts to leverage the speed and computational resources of ...

systems and robots. The client

graphical user interface A graphical user interface, or GUI, is a form of user interface that allows user (computing), users to human–computer interaction, interact with electronic devices through Graphics, graphical icon (computing), icons and visual indicators such ...

of the electronic trading platforms could be used to place various orders and were also sometimes called

trading turret A trading turret or dealer board is a specialized Key telephone system, telephony key system that is generally used by Trader (finance), financial traders on their trading desks. Trading has progressed from floor trading through phone trading to e ...

s (though this may be a misuse of the term, as some refer to the specialized PBX phones used by traders). During the period from 2001 to 2005, the development and proliferation of trading platforms saw the setting up of dedicated online trading portals, which were electronic online venues with a choice of many electronic trading platforms rather than being restricted to one institution's offering.

Regulations

Information Reporting

In 1995, the

U.S. Securities and Exchange Commission The United States Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street crash of 1929. Its primary purpose is to enforce laws against market m ...

(SEC) promulgated Rule 17a-23, which required any registered automated trading platform to report information, including participants, orders, and trades every quarter. Requiring platforms to comply with enhanced pre- and post-trade transparency requirements has provided a stronger incentive for users to trust electronic trading platforms.

Order Handling Rules

Market fragmentation Fragmentation in a technology market happens when a market is composed of multiple highly-incompatible technologies or technology stacks, forcing prospective buyers of a single product to commit to an entire product ecosystem, rather than mainta ...

led some Nasdaq market makers on

Instinet Instinet Incorporated is an institutional, agency-model broker that also serves as the independent equity trading arm of its parent, Nomura Group. It executes trades for asset management firms, hedge funds, insurance companies, mutual funds a ...

to quote prices that were better than their own quotes on Nasdaq. To address this discrepancy, the SEC introduced the Order Handling Rules in 1996. These rules required stock exchange specialists and Nasdaq market makers to publicly display any price quoted on a proprietary trading system that represented an improvement of their displayed prices. Another order handling rule required a

to display the size and price of any customer limit order that either increased size at the quoted price or improved the market maker's quotation.

Decimalization

Decimalization was instituted in 2001 by the SEC, requiring market makers to value financial instruments by increments of $0.01 as opposed to the previous standard of $0.0625. This change significantly lowered margins, providing an incentive for big dealers to utilize electronic management systems and eventually leading to lowered trading costs.

Features

Historical data

Electronic trading platforms frequently provide historical data, including graphs, to help their customers make trading decisions. These diagrams may be expanded to contain a large number of dates and are frequently employed in technical analyses of particular instruments.

Current news

To help consumers make decisions about their contracts, trading platforms frequently include recent news. Articles on certain businesses may be included, as well as updated ratings provided by independent companies that focus on particular commodities. Similar information to what professional traders can access is available to retail traders on different applications due to specialized news.

Portfolio tracking

The user's portfolio can be tracked, which is another function that is frequently seen on trading platforms and can have an impact on trades based on a trader's past performance.

References

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