Are Stock Exchange Markets Around the World Better Handled by Software That Trade Stocks or Is It Better Handled by Human Endeavor?

Business Written Commentary

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IB Business and Management 2017

Title: Are Stock Exchange Markets around the world better handled by software that trade stocks or is it better handled by human endeavor ?

Candidate Code: gbm706

Business and Management IA SL

Word Count : 1400

Table of Contents

Introduction 3

Findings 4

Analysis 5

Conclusion 6

Appendices 7

Bibliography 7

Introduction

I decided to do my commentary focusing on the change of humans to software in many stock trading firms. This is a topic that interests me since I find it rare that companies have more trust on software than real humans to handle their stocks and money.

In finance, a stock represents the partial rights of ownership the person that owns the stock has over a certain business or company. This means that a person who owns stocks of a certain company is owner of a part of that same company. The more stocks a person owns, the larger the part of the company he owns. An individual person or an institution (which includes a corporation) looks to buy stocks because that means that a part of the company’s benefits goes to you and the more stocks you buy (combined with the fact of how valuable the company that you are investing is) the more money you get. One of the main objectives in the stock market is to buy stocks, of a company who’s value is going up, at the lowest price you can get them (so that when the value of the company goes up, the value of the stock you now own also goes up). On the other hand, another main objective is that if the value of your stock is expected to go down, you sell your stocks for a high price before they loose their market value. In either situation (buying or selling) you are looking to invest in a company and at the end of the day, get more money out of your investment than you initially put into it.

The Stock Exchange are private organizations that connects the investors or (stockholders and shareholders) to the Stock Market. This means that the people who work at a Stock Exchange (called Stock Brokers) attend to their clients needs by selling or buying the stocks that their clients tell them. The negotiations of the stocks are made by taking into account fixed prices in real time, in a safe environment for the investors where the transactions are also regulated (a factor which ensures the security and transparency of the market). The Stock Exchange of a country strengthens its capital market and helps with economic and financial development. Now days, the Stock Exchange works with forecasting methods that allow corporations and individual investors to have a margin of how much the market value of stocks is going to go up or down and this helps them in their decisions when the market opens and they want to buy or sell any kind of stock. This forecasting systems work with information taken from a database that has historical and mathematical facts based on past stock transactions. There are three major characteristics and three major participants in the Stock Market.

The main characteristics are: return on equity, the financial process in which an investor tries tu get back his money with some more value to it; risk, since the value of stock in the market is always changing, there is always a risk with each stock transaction; and liquidity, that is the ease in which this type of investment allows the investors to buy and sell quickly. The major participants are: intermediaries, that are the Stock Brokers who trade stocks in the market in the name of their clients; investors, the individual that’s looking to invest some money and buy a part of a business or company; and the companies or estates, the type of investors that are not individuals but large corporations that look to invest money in other businesses or companies.

Findings

When the Stock Exchange started, it was the job of hundreds of stock brokers and many companies to trade, sell or buy stocks in the market. Recently, many companies around the world have turned their heads towards programmed software instead of human effort in order to run their business. That’s why now days, the New York Stock Exchange building is mainly a t.v. set of reporters watching software bots that taught themselves how to trade stocks, instead of humans running the show. This means that now days when you are looking to buy or sell stocks, you may be surprised to find out that you are not competing against humans in the market, but robots. These type of trading is called Algo Trading, when stock transactions are