Ever since trading began migrating from the floor of exchanges to the digital sphere, volumes have increased exponentially. There are several reasons for this. Lower barriers to entry encourage competition. Lower costs make higher turnover feasible. And digital or online markets are accessible to more potential clients.
This phenomenon is not limited to trading. Many other industries have seen turnover increase many times over since moving online.
One of the first industries to spot the potential of moving online was the gambling industry, where online gambling is now accessible to people who would otherwise never consider setting foot in a casino. Besides poker and other casino games, people can play online slot games not just for fun but also for real money. It’s not just a matter of attracting a wider audience, it’s also more practical. People can access gambling sites for a quick 10-20 minute gaming session at any time of day or night – that’s simply not possible for physical casinos.
Of the 10 most valuable companies in the world, six operate some form of online marketplace. Apple has the App Store, Google and Facebook operate several markets for advertising and apps, Amazon and Alibaba sell books, electronics and more, while Tencent sells advertising and games in China. Many of these companies are not even two decades old, and yet they have grown to dominate the global economy. Let’s look at why that is.
As soon as a market is online, its market is global rather than local. And it goes beyond highly developed, urban markets too. Mobile connectivity means that even far-flung rural communities are now part of the global market, and are able to buy and sell goods and services.
Lower Barriers to Entry
Online markets have very low barriers to entry. Many of the most successful businesses are built around the idea of taking all the remaining barriers to entry away. To sell goods on eBay all you need is an email address and a PayPal account. Amazon, Airbnb and Uber have removed rent, marketing, HR and other staffing costs from the equation.
Lower barriers to entry mean more competition and lower prices. And lower prices mean more demand and higher turnover. Those who could never afford a taxi might be able to afford an Uber. Those who can’t afford a hotel room may be able to find affordable accommodation on Airbnb.
The increased competition in online marketplaces has forced vendors of goods and services to tailor their offering more. The ‘on demand’ or ‘gig’ economy consists of highly skilled freelancers selling their services on an hour by hour basis. Websites like upwork.com and freelancer.com allow companies to hire workers with very specific skillsets for a few hours a month. That means a small business that would never be able to afford a full-time accountant can now afford to hire an accountant with industry experience on an hourly basis, as and when required.
Mobile devices, tablets, notebook PCs and social media platforms like Facebook and Twitter means companies can be engaged with their audience 24/7. Just 25 years ago, business hours for most businesses were only seven or eight hours a day. But even with those business hours, a company could only engage with a customer when they entered a store or picked up a phone.
The evolution of online markets has proved at least one economics 101 theory to be correct. Lower prices lead to higher demand. Financial markets were the first to prove this, but it’s a phenomenon that’s now affecting almost every industry. And back in the world of Forex, stocks and commodities, as trading costs continue to fall volumes will continue to rise.
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