Experts like Dan Schatt and others have written extensively about the impact of cutting-edge technology on financial markets. The following are thirteen ways that cutting-edge technology, particularly what is available through social media, has affected markets either currently or in the not-so-distant past.
1) Increased transparency
With regulation requiring companies to be more transparent about news impacting their company, investors have instant access to information as soon as it is released through social media outlets. This has led to increased price volatility and opportunities for arbitrageurs.
2) More efficient markets
Technology has enabled faster dissemination of news, leading to more efficient markets. For example, the rumor of Dell going private spread rapidly on Twitter, long before mainstream media caught wind of the story.
3) More efficient allocation of capital
Technology has allowed for faster and more efficient capital allocation, with investors now able to deploy capital in nanoseconds. This has led to increased competition among investors and a more efficient market overall.
4) New products and services
Technology has enabled the development of new products and services, such as high-frequency trading, which would not have been possible in earlier eras.
5) Increased regulation
Technology has led to increased regulation, with regulators now able to police markets more effectively. So, for example, the SEC could track down the person who released Dell’s secret information on Twitter.
6) Greater access to capital
Technology has led to greater access to capital, with more people now investing in the markets. This has led to increased liquidity and a more efficient market.
7) Increased volatility
Technology has led to increased volatility as investors now have access to more information, leading to irrational behavior. For example, the stock prices of Apple and Facebook were both highly volatile on the day of their respective IPOs.
8) More efficient price discovery
Technology has led to more efficient price discovery, as investors can now trade stocks and other securities at faster speeds than ever before.
9) Greater fragmentation of markets
Technology has led to greater fragmentation of markets, as investors are now able to trade stocks and other securities on a global basis.
Technology has led to disintermediation, as investors can now trade stocks and other securities directly with one another, without the need for a middleman.
Technology has led to interconnection, as investors are now able to communicate with one another more effectively. For example, the popularity of online chat rooms and other forms of social media has allowed people from all over the world to connect.
12) Reduced role of investment banks
Technology has reduced the role of investment banks because investors can now trade stocks and other securities directly with one another. With middlemen less necessary, this has led to greater transparency in the market.
13) Fragmentation of trading platforms
Technology has led to the fragmentation of trading platforms because investors are now able to trade stocks and other securities on multiple exchanges, both domestically and internationally. For example, the average investor can now buy and sell stocks on the NYSE, NASDAQ, and London Stock Exchange.