The rise and rise of online investing
- Edward Croft is CEO of Stockopedia, a UK-based website which aggregates research, commentary and analysis for investors, and offers social networking opportunities. The opinions expressed are his own. He will participate in the Reuters Politics Today live blog at noon British time on Wednesday, April 7, 2010, during Prime Minister’s Questions. Please tune in and join the discussion. -
Online investing started with a bang back in the late 1990s, with the onset of the day trader phenomenon and big IPOs for execution only brokers.
While the bursting of the dotcom bubble served to temporarily slow this trend, advances in communications technology over the last decade have brought even more powerful investment tools to individual investors at bargain prices.
Coupled with a growing mistrust of financial intermediaries due to the fallout from the credit crunch, increasing numbers of individuals are taking investment matters into their own hands (Barclays Capital recently reported that 85 percent of client trades are now executed online).
But while online investors now enjoy first-class execution services, they often lack cost-effective access to research and analysis that could improve their investment decision-making.
It is estimated that there are now over one million online investors in the UK with private investors holding over 12.8 percent of the UK companies by market capitalisation.
Individual investors can gain direct market access, level 2 prices and the ability to take leveraged shorts and longs on baskets of stocks via ETFs, trackers and advanced betting products.
Investors can effectively run mini hedge funds from their laptops with the kinds of tools that were formerly accessible only to institutions. But on the flip side, for both commercial and regulatory reasons, investment research tends to be restricted to institutional clients only.
A recent survey of Stockopedia users found that 61 percent felt that they did not have enough access to professional level research to make their investment decisions with 57 percentdescribing this lack of access as the most frustrating thing about UK investment websites. Investors are wanting easier access to high quality analysis and opinion and more accessible investor communications from companies.
Nature abhors a vacuum so online investors are using bulletin boards and social media sites in order to exchange investment ideas, but this represents a lost opportunity for the professional investment world. In the United States, websites such as Seeking Alpha, Minyanville, Wall Street.
Cheat Sheets and to some extent, Google Finance, are aggregating commentary from professional market participants through a single portal. However, the culture in the UK and Europe remains very different.
Professional advisers tend to be more proprietary about their research, rarely blog publicly and keep their commentary internal to the firm and its existing client base. An attitude shift is required to satisfy this latent demand from individual investors and a key opportunity exists for pioneering firms to raise their profile and reach in this environment.
A quick look on Twitter shows that the professional investment world in the UK remains largely unaware of the significance of social-media based marketing communication, a state of affairs that must surely be addressed as individual investors continue to demand greater access to information.
While the tools to trade are widely available on the Web, online investors in the UK could still be said to be lacking the “instruction manual”. There is not a level playing field in access to the analysis and commentary that might help them make more informed decisions.
The rise of the empowered individual investor is only one decade young. The next decade will hopefully see this new breed of investors come to full maturity as access to financial information, commentary and analysis becomes democratised.