History of Active Trading

Penning the Next Chapter: How Mondeum Signifies a New Era in Active Trading History

While over half of today’s investors own a self-directed brokerage account, self-directed trading was once a radical concept with humble beginnings. Prior to 1975, stock trading was a privilege reserved for society’s most elite, with individuals required to have direct relationships with their brokers. The math was stacked against small investors: the system was inefficient, spreads were very large and even on listed exchanges, the smallest ticks were one-eighth of a dollar. Up until May 1, 1975, commissions were set at a fixed rate, which could be as high as 2% of the cost of the entire trade.

What unfolded in the ensuing decades was the result of regulatory moves that shifted pricing and commission rates in favor of individual traders. Once brokerage firms gained permission to compete and price how they wanted, discount brokerages began to crop up, increasing market accessibility – but that was only the beginning. Since then, we’ve seen significant evolution across pricing, regulation and market trends. Let’s delve into each area.

The Dawn of Day Trading

The SOES (Small Order Execution System) was first created by Nasdaq (then styled NASDAQ, of course) in 1984, effectively revolutionizing what was possible for retail traders. Individuals were now able to route orders of 1,000 shares or less for immediate execution. When Black Monday occurred in 1987, the growing population of retail traders experienced mass panic when their OTC market makers would not answer their phones, preventing them from selling out during the crisis. This created a sense of tension and animosity between these two groups, with active traders feeling like the market was working against them.

Shortly after the market crash, a select group of active traders began taking advantage of the fragmented order flow that resulted when SOES was rolled out on all Nasdaq securities. These “SOES bandits,” as they were called by The Street, would get in quickly and snipe market makers’ posted quotes before they could be updated to accurately reflect the new prices. The bandits were at an advantage, trading electronically and receiving instant executions, over the market makers, who were conducting business in trading pits and communicating via phone.

Unsurprisingly, this practice was quickly called out, with market makers feeling taken advantage of and exploited. Regulators blamed the SOES bandits for reducing liquidity, widening spreads and causing market volatility – though many disagreed with this characterization. Regardless of anyone’s opinion, the strategies and tactics the bandits devised became the earliest form of modern high-frequency trading.

Power to the Everyday Trader

Since then, we’ve seen a rapid evolution across virtually every aspect of self-directed trading. Day trading became more viable, with traders taking their transactions into their own hands as they no longer needed to go through a broker. As active trading gained traction and popularity, electronic communication networks (ECNs) arrived on the scene. By eliminating the middlemen in securities trading, ECNs offered significantly lower transaction costs. Their low-latency technology increased speed to market and resulted in narrowed spreads. Today, nearly all trading is done electronically, with market-making concentrated in a few designated firms powered by automation.

At the dawn of the 21st century, several developments and trends cropped up in succession that caused the active trading scene to accelerate. The SEC ordered all stock markets to convert to decimalization in 2001, making it easier for traders to discover prices and place trades. This ultimately created tighter spreads, with ticks as low as a penny. Some years later, in response to JPMorgan’s You Invest, several online brokers competed to offer commission-free trading of stocks, and by 2019, several major players had finally reached zero commissions on trades of stocks and exchange-traded funds (ETFs).

The industry has witnessed the rise and fall of various hot-button trends, with contemporary online brokerages and robo-advisors ushering in a younger demographic. Recently, the COVID-19 pandemic served as the impetus for the popularization of “meme stocks,” which became viral among retail investors via the social media platform Reddit. The movement was largely spearheaded by younger traders using zero-commission apps. These traders zeroed in on specific stocks and drove up their prices en masse, resulting in short squeezes on “hot stocks” including GameStop (GME) and AMC Entertainment Holdings (AMC).

Mondeum: A Next-Gen Solution

As we’ve detailed above, the self-directed trading space has seen a lot of change in a relatively short time period, and thus, traders must be armed to react to any market fluctuation. Up until this point, active trading history has laid the foundation and created a niche for an elevated trading experience, which Mondeum Capital provides. As a broker-dealer providing next-gen solutions catering to the vibrant self-directed trading community, Mondeum considers itself well positioned to serve experienced active traders serious about taking their game to the next level. Our signature Mondeum Pro product offers fully digital onboarding and a competitive, progressive pricing model – and our unwavering transparency and timely customer support are foundational to everything we do.

Mondeum’s highly experienced core audience of traders have earned their stripes in the self-directed trading space, and now, we’re giving them the tools to make the most of their trades. We give traders total control of their order flow, empowered by our suite of smart order routes: they can select routes based on venue type or strategy, or opt for our PFOF route where they can collect a portion of the rebates themselves. No matter what direction the self-directed trading scene may head in next, we’re dedicated to supporting our traders with the technology, support and control they require to compete in today’s markets.

Get in touch today to learn how Mondeum can help you jumpstart the next phase of your active trading journey.

Take Your Trading to the Next Level

Powerful trading technology. Competitive pricing. Personalized support. Fully digital onboarding. Our trading platforms deliver everything active traders need to efficiently and competitively carry out their equity and ETF strategies – and you can get started today.