Importance of Information Technology in Finance

by Eric Novinson; Updated September 26, 2017
Couple paying bills online

Information technology has many uses in finance. From trading financial instruments to keeping records of personal budgets to reporting the earnings of a business, computer technology is used by financial companies daily. Information technology allows the rapid calculation of financial statistics, as well as electronic transfers of money.

Trading

Financial trading is enhanced with information technology. Some computer systems even trade for the users. A system is programmed to enter buy and sell orders when the price of a stock or bond reaches a certain level, and automatically closes the order when the target price or the stop-loss is reached. Computer based trading is useful when a trader has a system that allows profitable trading and does not want to enter each order individually. Information technology provides instant information for stock traders to make decisions, and allows them to enter orders that are immediately executed.

Reporting

Financial reports are also improved with information technology. The language known as XBRL, or Extensible Business Reporting Language, is used to standardize the financial information in public companies' annual reports. Traders can quickly sort through records in this format. They can easily find the statistical data they need to determine which companies to invest in. According to the California State University at Fullerton, XBRL is based on XML, the extensible markup language used to transfer information over the Internet.

Function

Financial data can be easily transferred with information technology. Instead of using checks and checking accounts, information technology can clear a transaction instantly. A debit or credit card purchase is rapidly compared with the user's account balance, allowing a bank to decide whether to allow a transaction. Information technology allows transactions during weekends and holidays, when there is no staff working at the bank.

Convenience

Personal finance is simplified using information technology. Banks provide data on checking and savings deposits and withdrawals in standardized formats. A customer can download account transactions and store them in records on a home computer. Personal finance software includes additional features, such as charts and reports, that show home users what they are spending money on and where their funds are coming from.

Budgeting and Bookkeeping

Information technology is also helpful for companies that are considering financial transactions. Computer systems calculate and display the interest and principal of a loan, and estimate the returns on investment when the company borrows money to expand its operations. Companies can securely transfer data online, and the computer system records all transfers, which simplifies bookkeeping.

About the Author

Eric Novinson has written articles on Daily Kos, his own blog and various other websites since 2006. He holds a Bachelor of Science in business administration from Humboldt State University.

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