New Study Shows Modern Trading Technology Has Cut Costs for Retail Investors by 50 Percent

WASHINGTON–(Americans invested in the markets have an average of 30 percent more savings in their retirement accounts over the course of their lives due to advances in market automation over the past three decades, according to a landmark report released today by the Initiative for modern markets, a non-profit educational and advocacy organization for innovation in today’s markets.

The study, A report on market automation and the democratization of markets: lower bid-ask spreads and investor savings found that modern electronic trading technology enables retail investors to retire 2 1/2 years earlier for the same retirement goal.

The conclusions of the report come from a comprehensive review of bid-ask spreads in stocks (the difference between bid and ask prices) over the past 30 years.

The report says:

The financial markets that operate in the United States are widely admired around the world – and they are the best since the New York Stock Exchange was founded in 1817. While investor sentiment will fluctuate between bull and bear markets, there is part of it Market in which large and small investors have consistently achieved positive returns over the past 30 years, both in terms of market structure and trading costs. ”

This study analyzed several savings vehicles used by American investors, including public retirement plans, 401 (k) plans, individual retirement accounts (IRAs), 529 college savings plans, and ETFs.

The electronization of markets has leveled the technological playing field between Wall Street and Main Street, giving retail investors far fairer access to markets at a time when saving and investing have never been more important to many, the report said.

Kirsten Wegner, CEO of the Modern Markets Initiative and co-author of the report, said: “The net result of the numerous electronification initiatives has been more money in the pockets of teachers, firefighters, nurses, and many other hard-working Americans who want to retire in comfort. ”

Electronification initiatives since the 1990s include automated trading technology, improved exchange technology, decimalization, Reg NMS (protection of connected markets), among other technological and regulatory developments. All in all, these initiatives have reduced trading costs for retail investors by 50 percent.

The report concluded:

As electronic market making has matured into its third decade, it is important that regulators continue to promote competition in the markets. With further technological innovations, it is important that the SEC, FINRA and CFTC have a strong cop on the beat … It is important that regulators continue to have the resources to keep up with changing technologies to ensure that investors have confidence in the markets.

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