Electronic trading is the buying and selling of financial instruments through automated systems, without human intermediaries executing individual orders. In electronic markets, trading platforms match buy and sell orders based on price and time priority, completing transactions in milliseconds. The vast majority of activity on exchanges worldwide today is electronic. This is the modern counterpart to floor trading, where traders stood on a physical floor and negotiated face to face: electronic trading handles algorithmic pricing and hedging at scale across millions of instruments simultaneously, while floor trading relied on human voice and hand signals in a single location. The two models reflect different eras of market structure, and most major venues transitioned from the floor to the screen over the past two decades.
When a firm like Optiver makes markets electronically, it continuously posts both a bid price, the price at which it is willing to buy, and an offer price, the price at which it is willing to sell, across millions of instruments simultaneously. The difference between these two prices is the bid-ask spread, which reflects the cost of providing liquidity and the risk taken by the market maker. Algorithms assess market conditions and update these quotes continuously, adjusting prices in response to new information, movements in related instruments, and changes in supply and demand. When a correlated instrument moves, an electronic system can rehedge the book within microseconds, adjusting exposure across thousands of linked positions before the market price has time to settle.
