New Financial Technologies: Another Way to Make the Rich Richer

The emergence of new financial technologies has been touted as a game-changer that will democratize the financial industry. With these new tools, anyone can be a successful investor, even if they lack traditional financial expertise. But as with most things in the financial world, the benefits of these technologies are likely to be concentrated among the already-rich.

One of the most popular new financial technologies is Robinhood, a mobile app that lets users trade stocks and other securities for free. On the surface, it seems like a fantastic deal for the average investor: no commissions, no account minimums, and an intuitive interface. But the reality is that Robinhood makes money by selling its users' data to high-frequency traders. This means that while Robinhood's users may be trading for free, they are indirectly paying a hefty price in terms of reduced execution quality and higher bid-ask spreads.

Another example of new financial technology is algorithmic trading, which uses complex computer programs to make investment decisions. Proponents of algorithmic trading argue that it eliminates human biases and emotions, and can generate returns that are higher and more consistent than those achievable by human investors. But the true beneficiaries of this technology are likely to be the large institutional investors who can afford to invest in these programs. For retail investors, the potential gains from algorithmic trading are likely to be outweighed by the costs of acquiring and implementing the technology.

In summary, new financial technologies may seem like a great way to level the playing field, but the reality is that they are likely to benefit the already-rich at the expense of everyone else. The cynical view is that these technologies are simply another way for the financial industry to make money by exploiting the naivete of the average investor. As always, the best advice for individual investors is to be skeptical of any claims that sound too good to be true, and to remember that there is no substitute for good old-fashioned research and analysis.
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