Saving the Online Brokerage Industry

Recently, many retail investors reduced their trading in the stock market because of increases in cost and regulations and a decrease in volume.  Additionally, many firms have gone out of business, are being bought for next to nothing or are downsizing to reduce the costs which will sink them if a change is not made.  There is a feeling of distrust in financial advisors as many do not act in the best interests of their clients.  The truth is that no one will care more about the traders’ money than the traders themselves.

The New Face of Trading

Over the past 20 years, trading has become cheaper and faster.  However, the competition has always revolved around data, technology and features.  Now, online trading is moving away from features and is focused on people in a transparent and open way.  In the past, each trade was distinctive and carried out in a closed setting.  With the advent of social trading, market data can be used and shared in real time.  Traders can now copy trades of other investors who have experience and skill – this is the social aspect of social trading.  Essentially, this gives traders instant knowledge of the markets and gives them complete control over which trades their money is invested in.  Trading is one of the last industries to enter the world of social networking and that has given new life to a previously stagnant industry.  Social trading is now a permanent fixture in the financial market landscape and the traditional brokerage industry will need a social trading strategy to survive and compete.

Selecting a Social Trading Platform

First, it is important for traders to determine what their risk/reward expectations are.  Each social trading network allows traders to risk different portions of their accounts so it is important for traders to choose the amount of risk that fits their needs.  Social trading sites that offer the least risk will also offer the lowest rewards so traders must determine how much they are willing to risk for the rewards when selecting a social trading site.  Some social trading sites also offer demo accounts so traders are able to see how the system works before trading with real money.

Another point for traders to remember when choosing a social trading site is whether they want the site to do most of the work for them.  Some sites have a small number of traders to follow, but they also automatically select traders to copy while other sites enable traders to partake in this selection process themselves.  The amount of money that traders want to invest is another important factor when choosing a social trading site.  Some sites require a minimum of $10,000 while others allow traders to invest a lower amount so sites should be selected based on the trader’s preference of investment amount.  Finally, different social trading sites will allow accounts to be managed with different currencies.  Traders should browse these social trading sites to determine which currencies can be used for account management.

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