Electronic trading platform
Encyclopedia
In finance, an Electronic trading platform is a computer system that can be used to place orders for financial products over a network with a financial intermediary
. This includes products such as shares
, bonds
, currencies
, commodities and derivatives
with a financial intermediary, such as a brokers
, market maker
s, Investment banks or stock exchange
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
and telephone based trading.
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 traditionally only be accessed by specialist trading firms such as allowing margin trading
on forex
and derivatives such as contract for difference
. They may also be designed to automatically trade specific strategies based on technical analysis
or to do high-frequency trading
.
rather than the computer system used to execute orders within financial circles.
' based systems.
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 APIs allowing traders to develop automatic or algorithmic trading
systems and robots, which have been used by high frequency traders
.
The client graphical user interface
of the electronic trading platforms can be used to trade currencies
, equities
, future
, or options
and are also sometimes called trading turret
s (this may be true, but is probably a misues of the term, as trading turret
refers to the specialized phone appliance used by traders).
in the US lists the following general standard requirements for forex
electronic trading systems;
Financial intermediary
Financial intermediation consists of “channeling funds between surplus and deficit agents”. A financial intermediary is a financial institution that connects surplus and deficit agents...
. This includes products such as shares
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
, bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
, currencies
Foreign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
, commodities and derivatives
Derivative (finance)
A derivative instrument is a contract between two parties that specifies conditions—in particular, dates and the resulting values of the underlying variables—under which payments, or payoffs, are to be made between the parties.Under U.S...
with a financial intermediary, such as a brokers
Broker-dealer
A broker-dealer is a term used in United States financial services regulations. It is a natural person, a company or other organization that trades securities for its own account or on behalf of its customers....
, market maker
Market maker
A market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread, or turn. From a market microstructure theory standpoint, market makers are net sellers of an option to be...
s, Investment banks or stock exchange
Stock exchange
A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...
s. Such platforms allow electronic trading
Electronic trading
Electronic trading, sometimes called etrading, is a method of trading securities , foreign exchange or financial derivatives electronically...
to be carried out by users from any location and are in contrast to traditional floor trading
Floor trading
Floor trading is where traders or stock brokers meet at a specific venue referred to as a trading floor or pit to buy and sell financial instruments using open outcry method to communicate which each other. These venues are typically stock exchanges or futures exchanges and transactions are...
using open outcry
Open outcry
Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders...
and telephone based trading.
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 traditionally only be accessed by specialist trading firms such as allowing margin trading
Margin (finance)
In finance, a margin is collateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of their counterparty...
on forex
Foreign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
and derivatives such as contract for difference
Contract for difference
In finance, a contract for difference is a contract between two parties, typically described as "buyer" and "seller", stipulating that the buyer will pay to the seller the difference between the current value of an asset and its value at contract time...
. They may also be designed to automatically trade specific strategies based on technical analysis
Technical analysis
In finance, technical analysis is security analysis discipline for forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis incorporate technical analysis, which being an aspect of active management stands...
or to do high-frequency trading
High-frequency trading
High-frequency trading is the use of sophisticated technological tools to trade securities like stocks or options, and is typically characterized by several distinguishing features:...
.
Etymology
The term 'trading platform' is generally used to avoid confusion with ‘trading system’ which is more often associated with the trading method or strategyTrading strategy
In finance, a trading strategy is a predefined set of rules for making trading decisions.Traders, investment firms and fund managers use a trading strategy to help make wiser investment decisions and help eliminate the emotional aspect of trading. A trading strategy is governed by a set of rules...
rather than the computer system used to execute orders within financial circles.
Historic development
The first electronic trading platforms were typically associated with stock exchanges and allowed brokers to place orders remotely using private dedicated networks and dumb terminals. 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 quoteRequest for Quotation
A request for quotation is a standard business process whose purpose is to invite suppliers into a bidding process to bid on specific products or services. RFQ, generally means the same thing as IFB ....
' based systems.
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 APIs allowing traders to develop automatic or algorithmic trading
Algorithmic trading
In electronic financial markets, algorithmic trading or automated trading, also known as algo trading, black-box trading or robo trading, is the use of electronic platforms for entering trading orders with an algorithm deciding on aspects of the order such as the timing, price, or quantity of the...
systems and robots, which have been used by high frequency traders
High-frequency trading
High-frequency trading is the use of sophisticated technological tools to trade securities like stocks or options, and is typically characterized by several distinguishing features:...
.
The client graphical user interface
Gui
Gui or guee is a generic term to refer to grilled dishes in Korean cuisine. These most commonly have meat or fish as their primary ingredient, but may in some cases also comprise grilled vegetables or other vegetarian ingredients. The term derives from the verb, "gupda" in Korean, which literally...
of the electronic trading platforms can be used to trade currencies
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
, equities
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
, future
Futures exchange
A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. These types of...
, or options
Option (finance)
In finance, an option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the...
and are also sometimes called trading turret
Trading turret
A trading turret is a specialised telephony key system, also known as a Dealer Board, that is generally used by financial traders in conjunction with other tools that make up their Electronic trading platform.-Voice Trading Turrets:...
s (this may be true, but is probably a misues of the term, as trading turret
Trading turret
A trading turret is a specialised telephony key system, also known as a Dealer Board, that is generally used by financial traders in conjunction with other tools that make up their Electronic trading platform.-Voice Trading Turrets:...
refers to the specialized phone appliance used by traders).
Trading platform standards
The National Futures Association (NFA)National Futures Association
The National Futures Association is an independent self-regulatory organization and watchdog of the commodities and futures industry in the United States. The NFA oversees and protects investors from fraudulent commodities and futures activities. The NFA also provides mediation and arbitration...
in the US lists the following general standard requirements for forex
Foreign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
electronic trading systems;
- AuthenticationAuthenticationAuthentication is the act of confirming the truth of an attribute of a datum or entity...
(Passwords, Authentication Tokens such as secureID cards; or digital certificates) - EncryptionEncryptionIn cryptography, encryption is the process of transforming information using an algorithm to make it unreadable to anyone except those possessing special knowledge, usually referred to as a key. The result of the process is encrypted information...
- Transactions recording standard
- Pricing and slippage standard
See also
- Electronic tradingElectronic tradingElectronic trading, sometimes called etrading, is a method of trading securities , foreign exchange or financial derivatives electronically...
- Electronic Communication NetworkElectronic Communication NetworkAn electronic communication network is the term used in financial circles for a type of computer system that facilitates trading of financial products outside of stock exchanges. The primary products that are traded on ECNs are stocks and currencies. The first ECN, Instinet, was created in 1969...
(ECN) - Retail forex platformRetail forex platformRetail foreign exchange trading is a small segment of the large foreign exchange market. In 2007 it had been speculated that volume from retail foreign exchange trading represents 5 percent of the whole foreign exchange market which amounts to $50–100 billion in daily trading turnover. The retail...
- Stock market data systemsStock market data systemsStock market data systems communicated market data—information about securities and stock trades—from stock exchanges to stock brokers and stock traders.-History:...
- Straight Through ProcessingStraight Through ProcessingStraight-through processing enables the entire trade process for capital markets and payment transactions to be conducted electronically without the need for re-keying or manual intervention, subject to legal and regulatory restrictions...
(STP) - Technical analysis softwareTechnical analysis softwareTechnical analysis software automates the charting, analysis and reporting functions that support technical analysts in their review and prediction of financial markets .-Features:...
- Trading system
- Trading roomTrading roomA trading-room gathers traders operating on financial markets.The trading-room is also often called the front office.The terms dealing-room and trading-floor are also used, the latter being inspired from that of a open outcry stock exchange....
- Automated trading systemAutomated trading systemAn automated trading system is a computer trading program that automatically submits trades to an exchange.An example of an early ATS is Instinet. This allows traders to input trades invisibly to the market, with a crossing price determined by a VWAP measure...