Custom Search

The Computer Revolution and Trading

In addition to the radical restructuring of commission costs to retail (i.e., nonprofessional) traders, there has also been a revolution in computer software and hardware technology. Since the mid-1980s, home computВэers have become increasingly powerful, efficient, and affordable. The cost of owning a state-of-the-art personal computer system has steadily declined while quality and processing speeds have steadily risen. For several thousand dollars, one can acquire a computer so sophisticated that by 1983 standards, its cost would easily have approached the $100,000 mark if not more.

Computers, however, are only as good as the software that makes them productive. They are limited by the limitations of software proВэgrams. Computer software specifically designed for personal computers (PCs and Macintoshes) has also made tremendous gains, particularly since the late 1980s. Virtually no area of science, literature, mathematics, or investments has been left untouched by the quantum advances in sophisticated software. The combination of advanced computer hardВэware, high-level computer software, and low-cost computer memory have ushered in a new era of futures trading, which, to borrow a conВэcept from J. Peter Steidlmayer, I call "the Age of Instantism."

Advances in Market Quotation Systems

Those who seek to venture into the new realm of instantism have at their disposal a multiplicity of market quotation services which provide everyВэthing from tick-by-tick data to delayed and after-market-closing data. Accurate price quotations at affordable prices are now available throughВэout the day for access by computer. The availability of live tick-by-tick data throughout the trading day has enhanced public participation in an area which for many years was the exclusive domain of professional off-the-floor traders as well as on-the-floor pit brokers. And this has added to the pool of short-term and day-trading participants. This, in turn, has increased liquidity which has facilitated short-term and day trading.

The International and Domestic Political Backdrop

While the aforementioned technical and fundamental factors have helped accelerate the tremendous growth of short-term and day trading in the futures market since the early 1980s, the backdrop of worldwide and domestic political and economic instability has exerted a synergistic force in markets already stimulated to greater activity. The uncertainty which originated during the OPEC oil embargo has spread its effect to virtually all markets during the last 20 years. Barely a market has been left untouched by international political instability and machinations.

Since the economic peak in the United States occurred between 1975 and 1981, the stability of once-revered domestic economic institutions has been seriously threatened, forcing an understandable deterioration of trader and investor confidence. Insecurities have expressed themВэselves in highly emotional markets and in extremely violent price moves within relatively circumscribed periods.

The exaggerated price movements which occurred during the stock market crashes of 1987 and 1989, as well as the minicrash of 1992 were symptomatic of underlying trader anxiety motivated by panic. The panВэics were clearly the result of diminished confidence in existing instituВэtions and in the ability of government to regulate economic affairs.