NASDAQ occupies a prominent position in the global financial landscape. The exchange facilitates transactions between countless traders and intermediate brokers. Despite all this, the existing drawbacks in its broker platform are leading to missed opportunities among traders. The negligence towards innovations such as AI-powered insights and trading tools is building an uneven playing field for retail traders and brokers alike.
AI-Based Insights: Why Do the Commoners Lose?
It is proven that AI-powered insights can beat the markets in a resilient manner. Institutional traders rely on AI algorithms to generate reliable returns. This may spark a debate about Man vs Machine, but there’s no denying that AI-powered devices are more accurate at predicting stock markets.
One of the main reasons for AI’s success is that it’s not influenced by human emotion. Human beings are prone to biases such as overconfidence or confirmation, often making decisions based on fear of missing out. Unfortunately, these errors in judgment can lead to losses over time. In fact, research shows that the majority of investors actually lose wealth over time.
While the NASDAQ exchange has a quick client-facing support system, its brokerage platform lacks advanced features found on modern exchanges. This means non-institutional traders can’t take advantage of AI technology, which is extensively used by institutions.
High-Frequency Algo Trading: A Difference Maker
Trading algorithms, or algos, are getting increasingly relevant with each passing day. They involve using complex computer programs to analyze market data and execute trades automatically. The algorithms are programmed to analyze data and provide insights that can be used to make trades.
Algo trading is especially popular among large-scale traders who are looking to maximize their returns. By using mathematical modeling and artificial intelligence, these traders are able to make informed decisions based on real-time data.
- Advantages of Algo Trading
Algo trading as a tool offers several benefits for traders, with one being speed. With the ability to process vast amounts of data in just seconds, traders can make quick decisions and make a profit.
Another advantage is customization. Algo trading algorithms can be tailored to meet the individual risk preferences of each trader, allowing for greater flexibility and control over trades. And because these algorithms can run 24×7, traders can take advantage of market movements at any time.
But perhaps the biggest advantage of algo trading is objectivity. Unlike human traders, algorithms are not susceptible to cognitive biases or emotional reactions to market conditions. Instead, they rely solely on data to make decisions, leading to more consistent performance over time.
Cost and Time Restraints
The NASDAQ broker platform comes at a high expense, which limits individual brokers from starting their independent brokerage business. Membership fees range anywhere between $5000 to $500,000, with several additional charges and an opaque pricing structure.
In addition to the cost restraints, the enlistment process is also time-consuming. While the minimum waiting period for broker registration is 6 months, the ground reality is different. New participants need to start under institutional traders, grind and work their way to the top. However, starting an individual brokerage business is not viable.
Market Manipulation and Financial Exclusion
AI-powered insights and trading tools are resource-intensive, especially in terms of expenses. Institutional traders possess the necessary resources to capitalize on these innovations. As a result, they remain at an advantage over the retail sector. Accurate insights, combined with adequate capital make it easy for them to manipulate the markets as per their requirements. As a result, the retail sector losses get indirectly converted to institutional profits.
In addition, the current NASDAQ broker model legitimizes only institutional traders having high asset value with membership eligibility. Despite penalization for illicit and unethical activities, there has been no change in its gatekeeping framework. The offenders, including the ones involved in insider trading, are neither stripped of their membership status. Discrimination exists, and a major section remains deprived of equal opportunities to brokerage access as well as high-cost AI tools.
Algo Trading Usage Among Institutional Investors
Algo trading has been making a splash in the financial markets for a while now, and it’s not hard to see why. Here are some examples of successful algo trading demonstrating how powerful this technology can be:
- Renaissance Technologies
Utilizing algorithmic trading has been a key factor in the remarkable success of Renaissance Technologies, a leading hedge fund founded by mathematician James Simons. With annual returns exceeding 35% for over 20 years, Renaissance has consistently outperformed its competitors. Simons’ belief in the potential of algorithms to outperform the market has been expertly executed through the fund’s use of algorithmic trading strategies.
- Two Sigma Investments
Founded by former quantitative analysts at D.E. Shaw, David Siegel, and John Overdeck, Two Sigma is a hedge fund that leverages algorithmic trading to identify patterns and execute trades based on extensive data analysis. With an impressive track record of 25% average annual returns over the past decade, the fund’s success owes much to its reliance on advanced algorithms.
- Citadel Securities
As the market-making division of Citadel hedge fund, Citadel Securities is a leading provider of market liquidity through its use of algo trading. It is one of the world’s largest market makers and was responsible for over 40% of US equity volume in 2020. Using advanced algorithms, which employ machine learning to adapt to real-time market changes, Citadel Securities can respond to fluctuations with speed and precision, contributing to its success.
As the world’s largest asset manager, BlackRock has been utilizing algo trading to manage its extensive portfolio for years. The firm’s algorithms are engineered to detect market mispricings and initiate trades to capitalize on them. In 2020, BlackRock’s iShares division, which uses advanced algorithms extensively, managed over $2.3 trillion in assets, demonstrating the effectiveness of this approach.
- Virtu Financial
Through high-frequency trading and advanced algorithmic strategies, Virtu Financial executes millions of trades daily by analyzing real-time market data and initiating trades within microseconds. Its rapid response to changing market conditions allows the firm to generate profits from even the smallest price movements, contributing to its overall success.
Steps to Instigate Change
For true global development and financial inclusion, it is necessary to bring about several changes within existing broker models. Conventional exchange broker platforms need to upgrade and innovate their existing structure. Possible ways to bring about a change include:
- Standardize AI-enabled Insights
The need to update and integrate innovation is vital. Modern exchange-broker platforms feature Data Engines that analyze anonymous transactions, market reports, news, and sentiments. They use the information gathered to create accurate market insights, including buy and sell signals to traders. Ever evolving, the Data Engines can also enable users with trading patterns and reports of seasoned traders, and adjust insights according to the user’s risk appetite.
- Make Algo Trading Mainstream
Broker platforms of global exchanges like PayBito offer a plethora of trading options across their intuitive user interface. The exchange offers algo trading options across both the Buy and Sell side, and features trading bots that can be set up within 2 minutes. Investors can customize their bots, or assign bot options as set by expert traders.
- Use Cloud-based BaaS to Save Time and Money
Cloud-centric brokerage platforms enhance financial inclusivity, empowering brokers to thrive in the digital age. The arrival of Brokerage as a Service (BaaS) initiates a disruptive era in exchange brokerage, capitalizing on cloud integration and other advancements. Embracing BaaS offers significant advantages like better affordability, user-friendliness, and immediate access to brokerage services.
In order to entice novice traders, NASDAQ may want to contemplate decreasing setup expenses. This would break down entry barriers and welcome diverse competitors to the platform. By attracting new traders, fresh ideas and strategies can be infused into the market.
Contemporary exchange platforms are now capable of providing instant brokerage services at rates as low as $49.99 per month. Furthermore, cutting-edge technology expedites the registration process, with exchanges like PayBito offering a broker platform registration in just 3 minutes.
- Boost Financial Inclusion and Brokerage Democratization
Facilitating international exchanges requires scalable brokerage services and financial inclusivity. Empowering brokers in the internet age involves accessible cloud-based platforms, which eliminate complexities like coding, server hosting, and other technical components. This entails lowering costs, relaxing eligibility criteria, and streamlining operational difficulties.
With the democratization of brokerage services, investors can utilize AI and real-time data to obstruct insider trading. Greater competition drives down manipulation and enhances regulatory supervision. Universal brokerage access fosters impartiality and clarity, thereby mitigating market crises.
- White-Label Broker Solutions
Aspiring brokerage entrepreneurs and firms can also build their independent brokerage enterprises with the help of white-label broker solutions. Leading white-label exchange providers furnish free trials, customization, and self-branding capabilities.
Conventional broker platforms such as NASDAQ comprise features that limit business opportunities for non-institutional traders. The backdated model inhibits financial inclusion, thereby stalling progress. Meanwhile, modern exchanges provide feasible and scalable cloud-based brokerage service offerings at nominal monthly fees. Brokerage democratization and AI-powered trading enable PayBito to make a sustainable difference through campaigns like Brokering World Hunger Away, where the exchange fosters collective contribution through brokerage commission with zero deductions to remove global child hunger.