How Technical Tools for Trading Have Evolved: Article by the CEO of GrainTrack for Forbes
Commodity trading (which includes grain, livestock, metals, and energy resources) is as old as human civilization itself. In the early stages of development, trading was simple, consisting of either barter or the exchange of goods for gold or other precious metals.
With the emergence of exchanges in Europe and the U.S., trading became more complex, with larger sale volumes, and physical trading was replaced by trading in futures contracts, derivatives, and other financial products. As the market developed, the speed of obtaining various price information became increasingly important. Traders began to leverage technology to maximize their profits.
Dmytro Mychalchuk, the founder and CEO of the IT company GrainTrack, shared insights with Forbes about the evolution of technical tools used by traders throughout different periods of history.
The First Exchange, Telegraph, and Newspapers
The first stock exchange in the world was established in Amsterdam in 1531. Even at that time, traders were making transactions for the purchase and sale of grain based on short sales, forward contracts, and options. Gradually, other European cities, and shortly thereafter American cities, created their own exchanges.
The increase in competition heightened the importance of access to information that influenced commodity prices (for example, grain prices could depend on regional weather, quality of transportation, financial and economic conditions, demographic situations, and many other factors).
Until the end of the 1830s, when the telegraph became widespread, the only means of obtaining information for traders was through printed media and mail. The telegraph accelerated data transmission from weeks and months to mere minutes, regardless of distance, prompting trading companies to swiftly adopt this technological advancement.
Ticker Machines and Telephones
By the mid-nineteenth century, telegrams had been improved; instead of encrypted messages using dots and dashes, lettered and numerical messages were printed on strips of paper. This further simplified communication — messages no longer needed to be decrypted.
In 1867, Edward Calahan, an engineer at American Telegraph, developed a special device (the so-called ticker machine) specifically for the needs of the stock market based on the telegraph. The ticker allowed the company Gold and Stock to establish a subscription service for telegraphic stock market bulletins featuring quotes from the New York Stock Exchange. The machine printed shortened company names as letter symbols on long, narrow strips of paper, followed by the transaction prices and volumes in numbers.
One of the First Ticker Machines
The exchange ticker was used until the early 1960s when it was replaced by the first computers. In 1878, traders gained another tool — the first telephone, which provided investors with direct access to brokers on the exchange. In the 1920s, the automation of stock price information dissemination within the exchanges began. Chalkboards displaying quotes were first replaced by electromechanical boards and then by electronic displays.
This tool became the foundation for a popular trading method on Western exchanges known as “open outcry,” where traders communicated buy or sell information through shouts and hand signals based on the continuously updating quotes.
The First Computers
After World War II, work began on creating the first electronic computers (EVMs). Initially, the technology was very bulky and expensive, affordable only to corporations and government institutions. In the 1960s, the first computerized systems for traders emerged, replacing ticker machines by displaying price quotes on electronic screens instead of paper, upon request from the trader.
The two main systems for delivering stock quotes, showing the latest price, bid and ask prices, and trends, were the Ultronics and Scantlin Electronics machines, which had similar functionality. They were small terminals set up on traders’ desks, allowing traders to quickly request prices and market information by pressing buttons. Data was received from remote servers to which the machines were connected via telephone networks using modems.
Apparatus for Receiving Quotes
In 1983, an attempt was made in the USA to launch a wireless system for the mobile delivery of price quotes called QuoTreck. This system was designed to transmit information over FM frequencies and display it on the electronic screens of mobile receivers. The developers even intended to integrate the ability to send emails into the system. However, the project failed due to technical difficulties, and the information it aimed to provide was not significantly different from what traders were already receiving through existing devices.
Present Day
The idea of providing traders with real-time access to market information has now been realized. Today, in the age of the Internet, professional traders receive this service through specialized trading terminals such as Bloomberg, Reuters, and others.
Modern Trading Terminals
In addition to automating access to price information, traders today are using technology to automate other business processes as well. For over 25 years, specialized information systems for commodity trading and risk assessment (CTRM systems) have existed globally. These systems enable commodity traders to effectively manage business processes related to the operational activities of their companies, including document management, counterparty database management, logistics, and the evaluation of commodity and cash positions.
Modern CTRM Systems
Another trend in commodity trading is the increasing use of artificial intelligence to analyze large volumes of data that may impact prices. Automatic or semi-automatic trading robots have long been utilized in securities trading. Western companies trading in commodity futures are also actively adopting these tools. According to a recent study by the U.S. Commodity Futures Trading Commission, from 2012 to 2016, the automation of crude oil transactions on the Chicago Exchange rose from 54% to 60%. In grain trading, this figure increased from 39% to nearly 50%.
Furthermore, participants in the commodity market have high hopes for blockchain technology, which utilizes distributed databases. Major companies have combined their efforts to develop a platform based on this cutting-edge technology to automate transactions related to maritime grain transportation, which is expected to significantly reduce costs and expedite the handling of commodity assets.