With electronic trading, buy and sell orders are placed using online trading platforms which automatically match orders between buyers and sellers. This replaces the traditional open outcry trading used in exchanges where trade orders are manually called out and executed.
The major benefits of electronic trading are:
Higher efficiency and speed: Electronic trading allows for automated matching of buy and sell orders which is much faster than manual trading.
Lower transaction costs: Automated execution results in lower commissions and fees compared to manual trading.
Increased liquidity: Electronic trading enables participation by a larger pool of investors which increases liquidity and trading volumes.
24/7 accessibility: Electronic trading platforms are accessible anytime allowing investors to trade around the clock.
Transparency: Electronic trading provides transparent and timely access to market data and order book information.
However, electronic trading also presents its own set of risks like technology glitches, higher volatility due to automated and high-speed trades, and vulnerability to cyber threats.
In summary, while electronic trading has gained prominence due to the benefits it offers, appropriate risk management practices and regulatory oversight are necessary to ensure its healthy growth.