How Trading Has Been Revolutionized by Trading Software

Published days ago on July 31, 2020
By Anton Kovačić

I am old enough to remember when trading in the markets was not such a simple thing. In college, I needed to liquidate a small stock position left to me by my Uncle. I am not sure of the exact commission to do so, but I am pretty sure it was between 50 and 100 dollars.

In today's market, such a commission would be unheard of. The Internet and electronic trading have vastly democratized trading. Today a trade commission of more than 5 dollars would be considered expensive.

The introduction of trading software to today's market and low commissions means any average Joe with some money to spare can participate in the market. This participation means the ability to trade not just stocks, but derivatives like options or futures. Currencies (Forex) including cryptocurrencies like Bitcoin may be traded or facilitated on modern trading software platforms.

These platforms may be on a desktop or mobile device. Not only is trading revolutionized by these platforms, but the ability to plan trades is enhanced with tools on these platforms for doing what is called technical analysis and fundamental analysis.

I cannot go into these concepts heavily, but in a nutshell technical analysis utilizes charts and price patterns and volume to determine in which direction price is most likely to move.

Fundamental analysis focuses on the fiscal health of a particular company and its ability to increase profits. The tools of fundamental analysis include balance sheets, asset to debt ratios and drivers of growth or decline.

One obstacle to using these analysis tools is the ability of the average Joe to determine how to utilize them. This requires much reading and research, but those interested in taking charge of their own financial affairs and growing their wealth will surely find the time.

Certainly with the increased availability of these tools, many have answered the challenge and that is what has brought down commissions to where they are now. The more commissions are lowered the more active traders enter the market. The more active traders that enter the market, the more commissions can be lowered. It is a virtuous cycle.

Something called the Application Program Interface (API) has enabled this all. API is technical jargon for software that allows programs to interact with one another. A typical platform uses API to bring different elements of a platform together. There is a trading element, a charting element, indicator elements and other functions that must work together under one roof so to speak.

Software with these varied components is usually available for download or is accessed on the web through a paid membership. Oftentimes traders will use a certain broker to execute trades but use a third-party website or software to do analysis because they find the brokerage platform inadequate.

That is what I like to do myself with Charles Schwab and Stockcharts.com. I execute trades through Charles Schwab. Even though I have access to Schwab's trading platform known as Streetsmart Edge, I do find it a little intimidating. I think Stockcharts.com is simpler to use. I have access to every technical indicator imaginable through stockcharts.com.

With a premium membership, I also have access to weekly market commentary and all the how-to videos on trading that I could ever consume. This sort of thing is typical on trading platforms these days, especially with paid memberships.

Another important tool that one has access to on today's platforms is Level II quotes. This tool can be especially important to daytraders for determining the positions other traders are taking. For experienced day-traders, Level II quotes can be important for determining when to pull the trigger on a trade and which direction to take.

To help one develop a trading system backtesting is important. A platform that I have had personal experience with that has excellent backtesting capabilities is Metatrader. Because Forex trading is challenging since banks often trade against Forex participants, backtesting is important in this particular market. That is why many Forex traders swear my Metatrader versions 4 and 5 to help them beat the banks.

There is quite a bit of competition between today's platforms. There is so much competition that many platforms will let you take a test-drive before purchasing the software or sinking money into a membership. Because there are so many different trading styles trading platforms can be very diverse, so it is important for each platform to capture their share of the market for traders that could be attracted to that platform.

I've already mentioned some platforms. It is time to go over some of the other platforms out there.

I've already talked about the Charles Schwab platform, but not what Schwab charges for trades. Charles Schwab has a fee structure very similar to another brokerage known as Fidelity. They both charge $4.95 for most stock trades. Fidelity's trading platform is Active Trader Pro.

I mentioned earlier that commissions over $5 can be considered expensive nowadays. For my Health Savings Account, I use such a brokerage which is TD Ameritrade. TD Ameritrade's platform is Thinkorswim, but one is charged $6.95 a trade trough this particular broker, but because I prefer to keep long-term positions in this account I really do not mind the extra expense. Thinkorswim is also a great platform.

Those who are very active traders or day-traders may prefer Interactive Brokers instead. Interactive Brokers has ultra-low commissions. US Stock trades in IRAs have no commission at all. Other trades may have commissions of 1 percent or less on the value of the trade. Extremely large trades may command commissions of up to 10 percent of the value of the trade. I have heard that Interactive Brokers has extremely bad customer service however, so you really need to know what you are doing if you choose them.

Ninja-trader is a popular third party platform that can be linked to most online brokerages so that all your analysis can be accomplished on Ninjatrader and you can send your order to your broker through the same platform.

I've already mentioned Stockcharts.com. Besides Stockcharts.com another popular third-party trading platform is TradingView. Both offer all the basic technical and fundamental analysis tools one could need. They offer great charting tools and plenty of trading tutorials for an affordable membership price.