Advances in market automation are resulting in record savings in trading costs for investors across the retail spectrum, according to a new report issued by the Modern Markets Initiative (MMI).
The study, “Stability in Turbulent Times: A Quantitative Analysis of the Liquidity and Narrowed Bid-Ask Spreads Provided by Automated Trading” reviews the history of automated trading and analyzes multiple savings vehicles utilized by American investors, including 401(k) plans, Individual Retirement Accounts (IRAs), 529 college savings plans, public pension plans, ABLE plans, and ETFs to document the benefits of market automation in saving investors’ money with lower trading costs and narrower bid-ask spreads.
Data from the study shows:
- Automated trading has led to 50% reduced trading costs in the last decade and more savings in Americans’ retirement accounts over a lifetime.
- A middle-class investor can retire years earlier as a result of market efficiencies and a mid-size state pension fund saves over $290 million a year each as a result of low cost trading.
- Individual investors are projected to save $1,674/year (for 10 years) and $5,243/year (for 30 years) in reduced trading costs as a result of automated markets per year, for an average 401(k) portfolio or IRA plan with $100,000 in assets.
The efficiency and effectiveness of the modern markets in the United States is in large part due to innovation, the report states. Market innovation has resulted in faster trade execution, more precise pricing, more money saved for retirement faster, a diversified product set, and new opportunities for hedging.
In the past few years, the U.S. equities markets have been tested with historic volatility. Despite this turbulence, the equities markets have functioned as intended, with the markets remaining open for price discovery, with dependable liquidity from HFT automated trading firms, and with retail investors able to get in and out of their positions.
“This report should be a valuable source of data for the SEC while it considers market structure changes. In short, retail investors have never had it better. While the U.S. markets are the best they’ve ever been and the envy of the world, it is important to continue technical innovation and ensure the SEC proposals don’t wind back the clock. Regulatory policies should be data-driven and consider the interests of the wide cross section of industry participants,” said Modern Markets Initiative CEO Kirsten Wegner.
