1. Electronic Trading: Introduction
  2. Electronic Trading: The Exchanges
  3. Electronic Trading: The Role of a Designated Market Maker
  4. Electronic Trading: The Role of a Market Maker
  5. Electronic Trading: Super Display Book (Formerly SuperDOT)
  6. Electronic Trading: Electronic Communications Networks (ECNs)
  7. Electronic Trading: Small Order Execution System (SOES)
  8. Electronic Trading: Level I, II and III Access
  9. Electronic Trading: Conclusion

Stock and commodity trading predate the invention of the computer – not to mention the telegraph and telephone. Pre-technology, the early exchanges were little more than informal gatherings of local businessmen who had interests in common, such as a wheat buyer and a wheat seller. Over time, the meetings became more formal and organized as the participants devised common rules and regulations. Eventually, open outcry evolved – a system where verbal bids and hand signals are used to convey information on the trading floors of the exchanges.

In 1969, Instinet (originally named Institutional Networks) launched the first automated system for U.S. institutions to bypass the trading floor and trade directly with each other on a confidential basis. Nasdaq appeared on the scene two years later, in 1971. Initially, it was an automated quotation system that allowed broker-dealers to see the prices other firms were offering – but trading was still handled over the phone.

DOT and SOES

Several years later, the New York Stock Exchange created the Designated Order Turnaround (DOT) system, which allowed brokers to route orders directly to specialists on the floor. In 1984, the next-generation SuperDOT emerged, allowing as many as 100,000 shares to be sent to the floor at once.

Eventually, Nasdaq offered its own automated trading system – the Small Order Execution System (SOES) – and other exchanges soon followed suit.

While open outcry is still used today to a limited degree, it has almost entirely been replaced by electronic systems that offer fewer errors, faster execution and better efficiency. Electronic trading dominates the financial world, and it can be helpful for investors and traders to understand how it works. To help you get started, here’s a quick look at electronic trading – including the exchanges and key technology.


Electronic Trading: The Exchanges
Related Articles
  1. Trading

    The Death Of The Trading Floor

    Electronic trading has almost completely replaced face-to-face human trading.
  2. Trading

    Automated Trading Systems: The Pros and Cons

    Automated trading systems minimize emotions, allow for faster order entry, lead to greater consistency and resolve "pilot error."
  3. Personal Finance

    A Day In The Life Of A System Trader

    Systems traders divide their time between trading, developing, backtesting, optimizing and forward testing, to create viable and high-probability trading systems.
  4. Trading

    Trading Systems: Run With The Herd Or Be A Lone Wolf?

    Find out if taking the path less traveled will work in your favor - or against it.
  5. Trading

    Basics of the Mechanics Behind Electronic Trading

    Once associated with shouting traders and wild hand gestures, now statistics and programmers rule.
Frequently Asked Questions
  1. What does it mean when my broker says that shares are for auction?

    An auction market is one in which stock buyers enter competitive bids and stock sellers enter competitive offers at the same ...
  2. What will happen to my SEP IRA if I leave my current employer?

    Because the funding vehicle for the SEP is a Traditional IRA, the same rules that apply to a Traditional IRA also apply to ...
  3. I want to close my IRA account. What percentage will I lose to tax?

    You can move the amount by means of a trustee-to-trustee transfer to another IRA, or roll over the amount to your 401(k). ...
  4. Can a spouse who is not named as a beneficiary receive assets from an IRA?

    Generally no: The designation of beneficiary form dictates who receives the assets – unless the named beneficiaries choose ...
Trading Center