This is not investment advice. The information provided is for educational and informational purposes only and does not constitute a recommendation to buy or sell any financial product.
Technology has reshaped the brokerage industry over the past two decades, and the technology continues to drive the change. The trader who used to call a broker to place a trade can now place the trade from a phone in a few seconds. The technology has lowered the cost, increased the speed, and expanded the access.
The shift to online and mobile
The first shift is the move from offline to online. The broker who used to operate from a branch network now operates from a website and a mobile app, and the broker who used to employ hundreds of brokers now employs a small team of developers. The shift has lowered the cost structure, and the lower cost has been passed on to the trader in the form of lower commissions and tighter spreads.
The mobile trading has become the primary channel for many traders, and the mobile app is the most important part of the broker's offering. The trader who evaluates a broker should test the mobile app, and the trader should look for a broker with a strong mobile experience. The mobile app should be fast, reliable, and feature-rich, and the mobile app should support the order types, the charting, and the alerts the trader needs.
The rise of zero commissions
The second shift is the rise of zero commissions. Several large brokers have dropped the commission on stock and ETF trades, and the brokers earn revenue from the spread, the payment for order flow, and the margin lending. The zero-commission model has put pressure on the traditional brokers, and the traditional brokers have been forced to drop the commission to remain competitive.
The trader who benefits from the zero-commission model should still compare the total cost, and the trader should look at the spread, the platform fee, the inactivity fee, and the currency conversion fee. The total cost at a zero-commission broker can be higher than the total cost at a low-commission broker, and the trader should not assume zero is always the cheapest.
The role of AI and machine learning
The third shift is the role of AI and machine learning. The broker uses AI to detect fraud, to provide customer support, to recommend trades, and to optimize the portfolio. The AI is becoming a core part of the broker's offering, and the AI is expected to play a larger role in the future.
The trader who uses AI-powered tools can save time, and the trader who uses AI-powered tools can make better decisions. The trader should look for a broker that uses AI responsibly, and the trader should look for a broker that explains the AI's recommendations.
The rise of robo-advisors
The fourth shift is the rise of robo-advisors. The robo-advisor has become a significant segment of the brokerage industry, and the robo-advisor is popular with younger investors. The robo-advisor uses algorithms to build and manage a portfolio, and the robo-advisor charges a management fee of 0.25 percent to 0.75 percent per year.
The robo-advisor has put pressure on the traditional advisors, and the traditional advisors have been forced to lower the fees. The advisor who charges 1 percent of the assets under management is no longer competitive with the robo-advisor that charges 0.25 percent.
The impact on the trading strategy
The first impact is the speed. The trader who used to wait for a phone call to confirm the execution now sees the execution in real time, and the trader can adjust the position immediately. The speed has changed the trading strategy, and the speed has enabled high-frequency trading and algorithmic trading.
The second impact is the data. The trader who used to receive a daily price update now receives a real-time price feed, and the real-time data is available on the chart, in the indicators, and in the alerts. The data has changed the trading strategy, and the data has enabled more sophisticated technical analysis.
The third impact is the access. The trader who used to have a minimum account of €10,000 can now open an account with €100, and the small account is enough to start. The access has opened the market to a larger pool of traders, and the access has increased the competition.
The challenges of the technology
The first challenge is the security. The broker stores the trader's personal and financial data, and the data can be exposed in a cyber attack. The trader should choose a broker with a strong security record, and the trader should use two-factor authentication.
The second challenge is the regulation. The technology has outpaced the regulation, and the regulator is struggling to keep up. The trader who uses a new technology should check the regulatory status, and the trader should look for a broker that is regulated for the products the trader wants to trade.
The third challenge is the complexity. The technology has added complexity to the platform, and the platform can be harder to learn for beginners. The trader should take the time to learn the platform, and the trader should use a demo account before going live.
Common questions about technology and brokerage
Will technology replace human brokers? No, the technology will not replace human brokers, but the technology will change the role of the human broker. The human broker will focus on the complex situations, and the human broker will provide the personalized advice.
Is the zero-commission model sustainable? The zero-commission model is sustainable as long as the broker can earn revenue from other sources. The trader should compare the total cost, and the trader should not assume zero is always the cheapest.
Will the AI replace the trader? No, the AI will not replace the trader, but the AI will become a tool for the trader. The trader who uses the AI can save time, and the trader who uses the AI can make better decisions. The trader should look for a broker that uses the AI responsibly.
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Where to start
If you are evaluating the impact of technology on brokerage, the most useful first step is to identify the trends that are most relevant to your trading style, and to pick a broker that is well-positioned for the future. Our broker comparison lists the brokers and the trends they are following, which together tell you what the broker offers before you open the account.