The stock trading software market is growing at a rapid pace. According to Verified Market Research, it is expected to show a CAGR of 12.32% from 2024 to 2031 and surpass $14 billion towards the end of the forecast period. Generally, stock trading software helps investment companies improve and facilitate buying and selling securities, including stocks, bonds, or options.
For instance, stock trading software can provide market research functionality, from the analysis of news feeds to research reports, to help companies discover new investment opportunities. It can also feature trading automation, enabling companies to increase the speed at which trades are made.
Not least, stock trading software can provide risk management capabilities for companies to mitigate different types of investment risk. This article outlines four ways stock trading software can help you.
1. Minimizing Investment Decision-Making Risks
Successful investment decision-making within companies implies accurate calculation of potential financial benefits and risks related to this or that investment. Inadequate assessment of rewards and risks can lead to wrong investment decisions and cause significant economic losses for an investment company. Stock trading software enables a company to discover risk-free investment opportunities and accurately weigh potential rewards and losses, reducing financial risks.
For example, a stock trading solution equipped with stock screening functionality allows investment companies to find those stocks traded on different markets that are worth buying.
Stock screener tools help analyze data from a particular stock market with AI algorithms to determine stocks that meet specific criteria pre-set by a company (stock market capitalization, accounting ratios, moving averages, etc.). Once the program identifies suitable stocks, a trading solution sends an automatic alert to investment managers via email or a corporate mobile application so they can decide whether to act and buy the securities.
Before making a final decision, managers can also predict the prices of these stocks to make a sound choice. For instance, a solution complemented with AI can estimate a stock’s price based on historical and current stock market data. To generate a more accurate forecast, the solution can factor in investor or consumer sentiment by analyzing data from news or social networks, as it can also considerably affect prices.
If a solution provides appropriate functionality, investment managers can also run a stock simulation (which is also called paper trading) before buying specific securities. These simulations, which imitate actual market conditions, allow professionals to assess the potential profits and losses associated with buying shares, as well as their volatility, in practice, without any financial risks.
2. Mitigating Risk In A Company’s Existing Portfolio
The use of stock trading software not only enables a company to reduce the risks of its future investments but also mitigates risk in its current portfolio. For example, a solution equipped with AI analytics functionalities helps continuously analyze market data and news to detect portfolio risks, such as those related to inflation, volatility, or other factors. If it recognizes such risks, it can notify investment managers via a risk alert system so that they can take adequate measures, such as netting.
Alternatively, a stock trading solution helps rebalance the company’s portfolio with minimal or no human involvement (in case it includes automated portfolio management functionality). For example, stock trading software can recommend the optimal portfolio composition (one that would balance risks and returns) to managers or even automatically modify the portfolio per need, thereby ensuring that the company’s portfolio is constantly adapted to the changing risk landscape.
3. Reducing Fat Finger Errors Made By Investment Managers
Even if a company manages to accurately predict market risks to manage corporate and its clients’ portfolios, it cannot guarantee the safety of investments while being exposed to operational risks. The probability of fat finger errors is one such risk. A fat finger error can occur when an investment manager makes an unintentional mistake when using a stock trading solution. Inputting the wrong transaction amount or pressing the wrong button, such as “buy” instead of “sell,” are just some examples.
And even a single error of this kind can have devastating consequences for an investment company. Bloomberg highlights the case of one company from Citigroup Inc., whose employee entered the price of securities into the wrong field of the bank’s trading system when purchasing stocks. As a result, the company mistakenly sold $1.4 billion worth of equities, after which the regulator also fined $79 million.
A stock trading solution equipped with specialized pre-trade control systems can help a company avoid such catastrophic errors. With such a solution, a company can set stock trading limits (for example, the system could automatically cancel orders exceeding $5 million or 100,000 shares). Alternatively, such a solution can require additional authorization from employees (for instance, it can not allow large trades to be made by anyone other than chief investment managers), which can also reduce the number of fat finger errors.
4. Detecting And Preventing Investment Fraud
Investment fraud is another risk that poses a significant threat to any investment company. According to the IC3 Internet Crime report, losses from investment fraud have grown from $3.31 billion in 2022 to $4.57 billion in 2023 (showing an increase of 38%). To date, losses from investment fraud have become the largest compared to all types of crimes tracked by IC3.
A reliable stock trading solution should be equipped with multiple security mechanisms to help a company avoid investment fraud. These can include 128-bit AES encryption, also known as “bank-grade” encryption, which protects users’ financial transactions from malefactors. These can also include two-factor authentication, helping a company ensure that no one can access an employee’s account unless they have a one-time code sent to a user’s phone.
Final Thoughts
Stock trading software is growing in popularity among investment businesses and entrepreneurs, as it helps make the trading process more frictionless and efficient. In addition, such software helps trading professionals reduce various types of investment risks and thus avoid capital loss. Not only can it help investors make risk-free investment decisions and manage portfolio risks, but it also reduces operational risks related to fat finger errors and fraud.
Whether you are planning to purchase a stock trading solution or build one from scratch, an experienced technological partner can support you with this initiative. It can help you choose a reliable stock trading software on the market and implement it properly. Alternatively, a partner can build a bespoke stock trading solution and equip it with the proper risk management functionality to help your company minimize investment risks.
