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An electronic trading platform being used at the Deutsche Börse.

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. 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 stocks, bonds, currencies, commodities, derivatives and others, with a financial intermediary such as brokers, market makers, Investment banks or stock exchanges. 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. 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 or to do high-frequency trading.

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.^[1]

Etymology

The term 'trading platform' is generally used to avoid confusion with 'trading system' which is more often associated with the trading method or strategy than the computer system used to execute orders within financial circles.^[2] In this case, platform is used to mean a type of computing system or operating environment such as a database or other specific software.

Historic development

Financial transactions had traditionally been handled manually, between brokers or counterparties.^[3] However, starting in the 1970s, financial transactions started to migrate to electronic trading platforms. Platforms and trading venues included electronic communication networks, alternative trading systems, "dark pools" and others.^[4]

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 quote' based systems.

In 1971, Nasdaq was created by the National Association of Securities Dealers and operated entirely electronically on a computer network. Nasdaq was opened on 8 February 1971.^[5] It rapidly gained popularity and by 1992, it accounted for 42% of trade volume in the US.^[6]

With the advent of electronic financial markets, electronic trading platforms were also soon launched. In 1992, Globex became the first electronic trading platform to reach the market. E-Trade, a company that started as an online brokerage service, soon also launched its own platform aimed at the consumer.^[7] These platforms rapidly gained popularity with E-Trade's growth rate at 9% per month in 1999.^[7] 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 was founded, focusing on copy trading, social trading, and other types of trading services.^[8] In 2017, the bitcoin exchange Binance was founded.^[9]

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.^[6]

The client graphical user interface of the electronic trading platforms could be used to place various orders and were also sometimes called trading turrets (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.^[10]

Regulations

Information Reporting

In 1995, the U.S. Securities and Exchange Commission (SEC) promulgated Rule 17a-23, which required any registered automated trading platform to report information, including participants, orders, and trades every quarter.^[11] Requiring platforms to comply with enhanced pre- and post-trade transparency requirements has provided a stronger incentive for users to trust electronic trading platforms.^[12]

Order Handling Rules

Market fragmentation led some Nasdaq market makers on Instinet 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 market maker 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.^[11]

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 $.0625. This change significantly lowered margins, providing an incentive for big dealers to utilize electronic management systems and eventually leading to lowered trading costs.^[13]

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.^[14]

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.^[14] The same information that professional traders have access to is available to retail traders on different applications due to specialized news.^[15]

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.^[14]