Noise in Financial Markets
Noise in Financial Markets
Chapter 1 examines the development of retail trading from the 1960s until our days, paying special attention both to the technological developments that marked the transition to electronic trading in the mid to late 1990s and to the place of retail brokerages within the institutional structure of financial markets. The focus is on the United States and the United Kingdom. Three kinds of processes are investigated close up: the evolution and diversification of retail brokerages in relationship to trading technologies; regulatory regimes and changes in these regimes; the evolution of the client structure of retail brokerages in relationship to online trading. In the 1980s retail brokerages adopted technological innovations meant to increase the frequency with which their customer base was trading. This trend continued in the 1990s, when online platforms for retail traders emerged. The creation of financial products tailored to retail traders and to more frequent trading was accompanied by a regulatory regime that also encouraged trading frequently (e.g., via a favorable taxation regime and high leverage). Between 2000 and 2010, the demographic structure of retail trading populations began to shift toward younger age groups, while income spreads grew larger.
Keywords: trading technologies, online trading, retail brokerages, innovation, traders, financial instruments
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