Technology has already disrupted stock broking in a big way. For example, it began with online trading and then algorithmic trading and low latency trading came along the way. While internet trading was more of a retail product, algorithmic trading and low latency were meant for stock brokers and institutional investors. What the stock broking business is now moving towards is the next step of technological sophistication. There are 7 broad trends that we see in the coming years.
Use of Artificial intelligence and Machine Learning
This is an emerging area but being increasingly used by brokers and financial advisors. AI is all about making computer programs in such a way that they can think and strategize like humans. Of course it is still about documenting and a template of past experiences, but AI brings the computer thinking abilities as close to a human as possible. Machine Learning (ML) is all about creating self creating programs that can rectify based on experiences.
Rise of Robo advisory modules
Imagine that you walk into a broker’s office and create your financial plan and there is an automated program that navigates you through the entire process. Welcome to the world of robo advisory. Robo advisory becomes a lot more powerful when it is combined with AI and ML. Take an example. Your robo advisory designs the right financial plan based on your goals. Then AI and ML get together to cumulate the man years of experience in the organization into discrete templates. That is how the entire financial solution is created, fine tuned and monitored.
Use of Blockchain technology
In terms of record keeping, Blockchain technology has few parallels. Interestingly, it is the technology that underlies Bitcoins and other crypto currencies. Blockchain is all about records that are permanent and shareable. For brokers it will be a great leap in terms of their interactions with regulators, exchanges etc and substantially reduce their investment in compliance. Being fool proof, the Blockchain is also a lot more reliable and credible.
Software as a product
When the open cry system ended in the mid-1990s in the stock exchanges, the first priority was to replicate the open cry system. Hence the trading modules in the early days were designed as subservient to the execution of transactions. That has undergone a major shift. For example, it is not software as a product. The interface is not just to facilitate the execution of transactions but it has become a software product in its own right. The platform has become so robust that the software has become the core and execution has become incidental. This trend is likely to get accentuated in the coming years.
Get deeper into real time analytics
What do we understand by real time analytics? For a very long time, research into stocks and markets was largely static in nature. There were periodic reports in the morning and the evening and then there were focused reports on sectors and stocks. That is changing. The environment of business has become so dynamic that by the time the report is released it tends to get outdated. How do you handle research and information in these conditions? The answer could lie in real time analytics. Real time analytics involves giving research ideas that is based on dynamic sets of data like news flows, announcements, global trends, domestic factors etc. Real time analytics is a lot more about real time probabilities and simulating solutions. The future of research is going to be less about static reports and more about these kinds of smart simulations.
Algorithmic and HFT trading is the road ahead
Currently, SEBI has kept its own sets of checks and balances in algorithmic trading to ensure that retail traders do not get into something they do not understand. HFT has, anyways, entailed huge investments. But you can envisage a scenario where brokers are able to offer the combination of HFT and algorithms to its retail customers; albeit with the requisite conditions and risk limitations. By adopting the equivalent of the cloud approach to algos, these modern ideas can be made available to millions of small and retail investors. That will at least take away the artificial advantage that a lot of institutions are enjoying today.
An increase in the use of chatbots
What do we understand by chatbots? These are what we call smart software that can actually chat with you. They are not the typically messengers that give you programmed answers. Chatbots are a lot smarter. They can pick up your profile and give responses that match up to your specific needs. It is not a template answering machine but a more customized responder. These will be increasingly used in the coming years.
It needs no reiteration that there will be huge shifts in the way the broking industry is driven by the use of technology in the coming years. For customers it will mean more objective advice and better execution.