Technology is created to simplify the financial process. Financial Technology can manage personal finances such as M-banking, marketplace, Identity (NIK), BPJS, and tax return. In addition, it can also manage institutional finances. Financial technology also manages all financial aspects according to accounting standards such as liabilities, assets, equity, revenue, and expenses. 

Accounting Equation 

• A = L + E 

• A = L + E + P - Expense 

Introduction to Financial Technology by Roy S. Freedman

Financial technology is concerned with building systems that model, value and process financial products such as bonds, stocks, contracts and money. Financial products are represented by the dimensions of price, time, and credit. Financial systems incorporate trading systems and trading technology to enable the buying and selling of products at different times and in different market spaces. Financial technology depends on standard secure communication protocols for initiating and synchronizing communication. 

Financial technology integrates mathematical, statistical, computing and economic models with news and analytical systems: and integrates with message, transaction, and order processing and payment systems. Financial systems perform their activities in compliance with rules, procedures, guidelines and regulations. Like military systems, financial systems are involved with strategy and tactics, logistics, information processing, secrecy and resource allocation.

Thus, financial technology facilitates reduction in transaction costs and increase in the price sensitivity of financial markets across borders, while at the same time making possible a range of economies of scale. Financial technology addresses the issues adequately in extending the field of finance beyond major financial capitals to the rest of the world.

Financial vs. Commercial Systems

Financial is Pertains to the management, creation, and study of money and investments. Often used in relation to personal finance (managing individual or household money), corporate finance (managing a company's finances), and public finance (government budgeting and expenditure). Examples are Financial statements, financial planning, financial markets.

Commercial Relates to commerce, which involves the buying and selling of goods and services. Often used in discussions about businesses and trade practices. The Examples are Commercial enterprises, commercial transactions, commercial law.

The book differentiates between financial systems (which deal with investments, trading, and risk management) and commercial systems (which focus on business transactions, accounting, and operations).

Market Structures and Financial Instruments

Explanation of various financial markets, including capital markets, derivative markets, and fixed-income markets, as well as the instruments traded within them.

Financial markets are organized systems where financial instruments are traded. Freedman categorizes these markets based on their structure and the types of instruments they handle:

Market Structures:

Long-term securities are purchased and sold on capital markets, which include stock markets (also known as equity markets) and bond markets (also known as debt markets). The New York Stock Exchange (NYSE) and NASDAQ are two prominent examples of these markets. Conversely, money markets offer significant liquidity for short-term lending and borrowing by facilitating the trade of short-term financial instruments such as commercial paper and Treasury bills. Options and futures markets are examples of derivative markets, which deal with financial contracts that get their value from underlying assets like stocks, bonds, commodities, or interest rates. An essential component of international trade and investment is the foreign exchange (Forex) market, a decentralized worldwide marketplace for currency trading. Last but not least, over-the-counter (OTC) markets function independently of centralized exchanges, allowing parties to transact directly for specialized financial products such as structured products and swaps.

Financial Instruments:

Ownership in a business is represented by equity, or stocks, which also provide shareholders the ability to vote and possibly receive dividends. Bonds, often known as fixed-income securities, are debt instruments issued by governments or businesses that yield principal repayment at maturity along with periodic interest payments. Financial contracts known as derivatives—which include options, futures, and swaps—are frequently utilized for speculation or hedging because their value is derived from underlying assets. Gold, oil, and agricultural products are examples of tangible things that are exchanged on commodity markets. Digital assets based on blockchain technology, such as Bitcoin and Ethereum, provide decentralized substitutes for conventional financial instruments.

Trading and Risk Management Systems

Financial technology supports trading platforms, risk analysis, and portfolio management.  Electronic trading platforms utilize algorithmic and high-frequency trading (HFT) systems to execute trades at rapid speeds using automated strategies. Order Management Systems (OMS) help brokerage firms and traders efficiently route, execute, and track orders. Market data systems provide real-time financial data, including price feeds and market analytics, enabling traders and institutions to make informed decisions in dynamic market conditions.

Risk management systems play a crucial role in financial stability by identifying and mitigating various types of risks. Credit risk management assesses a borrower’s ability to repay loans and manage default risks, with banks and financial institutions relying on credit scoring models for evaluation. Market risk management focuses on potential losses caused by fluctuations in market conditions, such as interest rate changes and stock price volatility. Operational risk management addresses risks stemming from internal processes, fraud, or cybersecurity threats. Additionally, Value at Risk (VaR) models use quantitative methods to estimate potential losses over a specific period with a given level of confidence, helping institutions make informed risk management decisions.

Regulatory and Compliance Aspects

Financial technology must comply with industry regulations and standards. Fintech companies and financial institutions must adhere to government regulations to ensure fair trading, prevent fraud, and protect investors. Freedman highlights several key regulatory and compliance measures. The SEC (Securities and Exchange Commission) regulations govern securities trading and safeguard investors against fraud. The Basel Accords (Basel I, II, III) establish international banking regulations that set risk management guidelines for financial institutions. The Dodd-Frank Act, introduced after the 2008 financial crisis, enhances transparency in financial markets and strengthens consumer protections. In the European Union, MiFID II (Markets in Financial Instruments Directive II) improves trading transparency and mandates investment firms to act in clients' best interests. Additionally, Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance require financial institutions to verify customer identities and monitor transactions to prevent illicit activities such as money laundering and fraud.