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Michael Giles

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Social Trading Could Save the Online Brokerage Industry

Posted: 07/30/2012 6:36 pm

Retail investors have abandoned the stock market. Volumes are down, while at the same time costs and regulatory requirements are going up, to a point where it doesn't even make sense. It's the perfect storm.

Some firms are going out of business, others are being acquired for very little and the rest are downsizing to reduce the fixed costs which will kill them if they fail to act.

People no longer trust traditional financial advisers because they don't act for the best interests of their clients. Mutual funds perform terribly. It's true that no one cares more about your money than you do.

However, it's not all bad news. Social trading can save the online brokerage industry.

Over the past two decades online trading has been commoditized, becoming faster and cheaper, but competition was always about the technology, features and data. It will now move away from features and focus on the people, in an open and transparent way.

Every trade used to be unique, and conducted in a closed environment. Social trading opens it up allowing structured trading data to be shared, and acted on, around the web in real time. Roboinvest is a perfect example.

It takes unique trades, and multiplies them many times over thus generating exponential trading volume -- something online brokerages desperately need. That's the trading part.

People would prefer to manage their own money, by following someone they know and trust. That's the social part.

Social trading injects new life into a now stale business, and is one of the final industries to enter the social web. "Social" is here to stay, it's going to completely disrupt the traditional online brokerage industry and they will all need a social trading strategy to compete and survive.

 

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