ONLINE TRADING & MARKET LIQUIDITY
What is Online Trading?
What is Market Liquidity?
Impact of Online Trading on Market Liquidity
12-09-05 The Impact of Online Trading on Market Liquidity 2
ArabFinance was formed in 2000 to meet a growing
demand for online trading, transparent financial
information, and financial services in Egypt and the Arab
world. The company is a subsidiary of LINKdotNET, the
biggest ISP in Egypt and Orascom Telecom.
Initiate and lead online trading across the Arab World
starting with Egypt.
Prepare users for online trading and create their need
for financial information through educational
Identify additional value added financial services /
products and launch them in the most convenient
12-09-05 The Impact of Online Trading on Market Liquidity 3
WHAT IS ONLINE TRADING?
On-line trading is every activity
of securities trading directly
It starts from:
Order Submission Order Validation Order Matching
12-09-05 The Impact of Online Trading on Market Liquidity 4
When servicing traditional brokerage clients, orders were
manually entered into the system by a broker after the
broker received instructions from the client.
In contrast, online investors place orders directly into the
brokerage firm's trading system, via the Internet, and
circumvent the need for order entry by a broker.
The implementation of direct order placement by online
investors has revolutionized the securities industry with
the facilitation of online trading.
12-09-05 The Impact of Online Trading on Market Liquidity 5
WHAT IS LIQUIDITY?
The term liquidity is used in various ways, all
relating to availability of, access to, or
convertibility into cash.
An institution is said to have liquidity if it can
easily meet its needs for cash either because it
has cash on hand or can otherwise raise or
An asset is said to be liquid if the market for that
asset is liquid.
12-09-05 The Impact of Online Trading on Market Liquidity 6
A market is said to be liquid if the instruments
it trades can easily be bought or sold in
quantity with little impact on market prices.
An elegant definition of liquidity is also the
probability that the next trade is executed at a
price equal to the last one.
12-09-05 The Impact of Online Trading on Market Liquidity 7
The common theme in all three
contexts is cash.
The liquidity of a market is often
measured as the size of its bid-
ask spread, but this is an
imperfect metric at best.
12-09-05 The Impact of Online Trading on Market Liquidity 8
More generally, three of the main components
of market liquidity are:
tightness is the bid-ask spread;
depth is the volume of transactions necessary
to move prices;
resiliency is the speed with which prices
return to equilibrium following a large trade.
12-09-05 The Impact of Online Trading on Market Liquidity 9
Does Online Trading affect
In broader terms, online trading does in fact
have an impact on market liquidity for the
very simple reason that it encourages new
entrants in the market and leads to higher
Furthermore, Investors shift from traditional
trading to online to enjoy the benefits it
The following features Online Trading is
characterized by are a good illustration on how
it affects market liquidity.
12-09-05 The Impact of Online Trading on Market Liquidity 11
Accessibility No Single Access
Confidentiality No one knows
about your trade
Transparency Live quotes makes
you act faster
12-09-05 The Impact of Online Trading on Market Liquidity 12
Flexibility Frequent order
Cost Efficiency Lower per cost
trade makes trade
Day Trading Faster Execution
Accuracy No need for
12-09-05 The Impact of Online Trading on Market Liquidity 13
On-line investors are using the Internet to their
advantage, and the entire structure of Wall Street
is changing as a result.
In Europe, the growth of the online brokerage industry is
surpassing even the most generous forecasts.
According to a research by Datamonitor, in the average
workday, 466 new online accounts are opened in
Sweden, 685 in the UK, and 1,178 in Germany.
One in every three individual investors' equity trades
is now being made on-line
12-09-05 The Impact of Online Trading on Market Liquidity 14
World Internet Usage & Population Statistics
World Regions Population Internet Usage Growth % Population % World
(July 2005) % of World Usage 2000-2005 (Penetration) Users
Africa 14.0% 16,174,600 258.3% 1.8% 1.7%
Asia 56.4% 323,756,956 183.2% 8.9% 34.5%
Europe 11.4% 269,036,096 161.0% 36.8% 28.7%
Middle East 4.1% 21,770,700 311.98% 8.3% 2.3%
North America 5.1% 223,392,807 106.7% 68.0% 23.8%
Latin 8.5% 68,130,804 277.1% 12.5% 7.3%
Oceania/Australia 0.5% 16,448,966 115.9% 49.2% 1.8%
World Total 100% 938,710,929 160.0% 14.6% 100%
12-09-05 The Impact of Online Trading on Market Liquidity 15
As the Internet becomes a required distribution channel,
the distinction between "on-line" and "regular" trading
By 2006, nearly all investors with
access to personal computers will use the Internet for
their stock and mutual fund investments-if not to enter
trades and orders, then at least to gather information
about the status of their accounts.
85 percent of all brokerage accounts could be online by
12-09-05 The Impact of Online Trading on Market Liquidity 16
The Internet is an absolutely revolutionary catalyst
in the financial services arena
The Internet has put so much money into action
It enables individuals working at
their PCs at home to act like global financiers.
The Internet provides near-perfect, real-time
market data and research
The Internet is rapidly making markets of all types
much more liquid and efficient
12-09-05 The Impact of Online Trading on Market Liquidity 17
According to Bill Barret:
“Online Trading is probably the only
business in the world where u can …
12-09-05 The Impact of Online Trading on Market Liquidity 18
Point, Click & Make Money”