The evolution of trading technology: From telegraphs to AI agents

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Every major tech advance in trading has promised an edge.

© nickolae/stock.adobe.com; Photo illustration Encyclopædia Britannica, Inc.

Throughout history, whenever there’s been money to be made, there’s been someone trying to get an edge using the latest technology. In the world of trading, the latest tools use artificial intelligence in the form of machine learning and large language models to find patterns in vast datasets and extract information from sources ranging from price data to earnings calls and regulatory filings.

It’s a long way from what could arguably be considered the very first form of trading technology: the telescope.

Amsterdam may not be the first place you think of when it comes to trading, but it was there, in 1602, that the world’s first modern stock exchange, the Amsterdam Exchange, was founded. That’s also where Dutch inventor Hans Lippershey patented the telescope in 1608.

It wasn’t long before savvy speculators reasoned that if you knew what cargo certain merchant ships were carrying, the telescope could help you make money. Traders positioned watchmen along the shoreline, scanning the horizon for incoming vessels. Once they spotted a ship, they could estimate how much of a specific commodity it carried based on how high or low it rode in the water.

More supply meant lower prices, and less meant higher prices. Couriers, estimates in hand, would rush back to the exchange with their “inside” information, allowing traders to place their buy and sell orders ahead of the competition.

As regional stock exchanges began to crop up, so did arbitrage opportunities—that is, chances to buy or sell an asset in one market, then lock in a profit by entering the opposite order in another. That meant that not only was information a commodity, but also that its value depended on the speed at which it could be transmitted.

In Europe, the “technology” used to distribute information came in the form of homing pigeons, which an enterprising young trader named Paul Julius, Baron von Reuter began using in 1850 to relay quotes, news, and other market data among traders at different exchanges. The endeavor eventually became obsolete with the expansion of the telegraph, but Reuters, the company he founded, still lives on today.

On the other side of the Atlantic, firms at the New York Stock Exchange employed athletic young men, known as runners, who would sprint throughout the city to deliver quotes from the trading floor to brokerage offices, where they would be posted on chalkboards for the public to see.

In 1846, the telegraphic printing system was invented. It converted electrical signals, sent via wire, into text that was printed on paper. But it was limited by its power source—a hand crank—and by its ability to print only in Morse Code. In 1867, Edward Calahan used the technology to create the first stock ticker. Thomas Edison improved the ticker in 1869, helping the technology gain widespread acceptance.

Brokerage firms that embraced this new technology gave their traders and customers a unique advantage over competitors. No longer did they have to wait for the latest newspaper to check quotes. Now stock prices could be transmitted across the country at the speed of one character a second, a process made even more efficient when the names of companies were abbreviated—an early form of what today is known as a ticker symbol.

New and improved versions came along, but by the 1950s, the drawbacks of the ticker tape were becoming more apparent. Rising trading volume was bumping up against the limitations of the device’s capacity—the amount of data the technology could handle at one time.

That meant trade reporting on the tape often ran late, sometimes hours late during a volatile market or big sell-off. Data organization was another issue, as the tape was essentially a raw transcript of transactions from the trading floor. But the biggest drawback of the ticker tape was that it was passive; brokers and traders had to wait and watch for specific symbols to scroll by.

A new, even better technology was needed.

Launched by the Scantlin Electronics Company in 1960, the Quotron I was the first push-button desktop quote system, enabling traders to “call” for a stock quote by keying in a ticker symbol and printing out a real-time bid and offer. In 1971, the company introduced the Quotron 800, a green-screen CRT monitor that became ubiquitous on Wall Street in the 1970s and 1980s.

Then, in 1983, traders were finally untethered from their desks when Dataspeed Inc. introduced QuoTrek, the world’s first handheld stock quotation device. QuoTrek streamed data over FM radio frequencies via satellite. Traders who subscribed to the service could get real-time quotes within a 40-mile radius of transmitters, which were located mostly in major cities. “Real time” was relative, however: QuoTrek cycled through thousands of quotes, so by the time a requested price appeared, it could already be several minutes old.

Despite the advances in trading technology over the previous 400 years, nothing could match the pace of innovation that followed widespread access to the Internet in the 1990s.

In the 2000s, faster Internet connections and cloud computing became commonplace, and real-time data became cheaper and easier to access. Then came the smartphone. Following the introduction of the Apple iPhone in 2007, retail traders increasingly had trading platforms in their pockets.

Competition meant that commissions fell dramatically, with some brokerages going to a zero-commission model. As chips and processors became more powerful, retail trading platforms could process and display increasingly large amounts of market data. Traders gained access to sophisticated charting tools, studies, indicators, and other forms of technical analysis once largely confined to professional trading desks.

The evolution of trading technology continued with artificial intelligence.

AI’s ability to find patterns in vast datasets and extract information from both structured and unstructured sources means it can be used to analyze news, market sentiment, and regulatory filings; develop and test trading strategies; manage portfolio risk; identify chart patterns; generate trade ideas; and even execute trades.

Traders have always been on the cutting edge when it comes to leveraging technology to increase their profits. But as the history of trading technology shows, what is considered groundbreaking one day can be obsolete the next. Artificial intelligence is the latest technological leap, but as with the telescope, ticker tape, and Internet, the advantage won’t come simply from having the technology. It will come from how traders use it—including their judgment, discipline, and risk management.