Retail investors used to have to make a stark choice. Either they bought and sold equities through a broker – somebody who would buy shares in companies on their behalf – or they’d pile all their capital into a mutual fund and wait. Without the internet, investors usually had to wait for their statements in the mail before they found out about the performance of their investments. It wasn’t always good news.
Technology has changed all that. Retail investors now have information that is nearly as good as top hedge funds. Investors can check the price of stocks whenever they like, read associated stories, access balance sheets, and generally have all of the tools at their disposal to work out whether a company is a good buy. It’s fair to say that tech is shaking up the retail investing scene in more ways than one.
It was only a matter of time before somebody applied new artificial intelligence software to the retail investing scene. In the past, retail investors had to do their research if they wanted to understand how markets worked. Investing is a technical discipline, as well as an art, and an understanding of key terms is essential. But robo advisors take some of the edge off the otherwise steep learning curve. People new to finance can quickly get up to speed with all the relevant concepts and jargon. Robo advisors can give information about complicated investment plans, 401(k)s and many other things.
Retail investors can also put their faith in machines too if they see fit. The world’s first AI-powered investment ETF launched last year. The ETF is a collection of funds managed by a computer based on all available data. The software takes data from the market to predict which firms will perform best over a 12-month horizon. So far, the software hasn’t convincingly beaten the market, but it’s early days.
In the past, if you wanted to buy shares in a company, you had to physically visit your broker, give the order, and then get them to buy the shares on the open market. Things have moved on a lot since then. Thanks to smartphones, the average investor can now just fire up an app on their phone, place an order, and take ownership of shares on the same day. Apps are usually linked to major trading houses, so be careful which you choose
High-Frequency Trading Products
The market is continually looking for new ways to create profit opportunities. A controversial method of doing this is the so-called high-frequency trading where an automated trading system makes dozens of trades per second. High-frequency trading is shaking up the retail investment scene because it is changing the strategy that regular traders should use.
Retail investors can either invest in funds that take advantage of automated, rapid trading or they can adopt a value-investing approach, ignoring all the short term fluctuations in the market. The good news is that there are now products that cater to both. Some funds use high-frequency trading, while others attempt to follow companies with value potential.