Social Trading

by Ashley Globerman,  Isabella Fonseca, April 2, 2014
Industry Trends
EMEA, North America

Abstract

This report focuses on social trading in the European and US retail investor market. Social trading is a method of online trading where users connect with each other to share financial market knowledge and share or copy each other’s trades.

The way in which retail investors prefer to perform banking or trading activities is evolving, partly due to the proliferation of the Internet, social media, and the affordability of smartphones. As such, the continued enhancement and development of online trading platforms, mobile apps, and social media presence are at the forefront of firms’ strategic plans. Social technologies are an integral part of retail investors’ lives, and younger, more tech-savvy generations are driving companies to realign their business strategies.

Over the past several years, social trading has grown, reflecting shifting attitudes of retail investors across generations in a post-financial crisis world. Social trading websites are revolutionizing the retail online trading market by challenging traditional online trading platforms. Social trading enables its users around the globe to share local market information with each other in real time, thus democratizing information. Although there are many upsides to social trading, there are a number of challenges associated with it, such as a lack of due diligence by inexperienced traders, vague regulations, and a “following the crowd” mentality.

“Social trading websites are revolutionizing the retail online trading market by challenging traditional business models. Social trading is an engaging and transparent way of trading online by negating information arbitrage,” says Ashley Globerman, Analyst with Celent’s Securities & Investments Group and coauthor of the report. “Traditional banks and brokerages are losing some of their market share to niche firms in the social trading space, and to gain back that market share, they will either acquire social trading platforms or build their own capabilities.”

“Novice traders will benefit greatly by gaining experience from more experienced traders,” adds Isabella Fonseca, Research Director and coauthor of the report. “While social trading poses good opportunities for firms to reach younger investors, firms also need to consider the challenges that come with building such a network, including building trust among traders and meeting regulatory standards.”

The report includes Celent’s identification of market drivers, definition of social trading and social trading networks, network business models, and platform features. Additionally, Celent will endeavor to explore legislation around social trading and conclude with forward-looking thoughts on the social trading industry.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

Introduction

2

 

What Is Social Trading?

2

 

Who Engages in Social Trading?

3

 

Where Does Social Trading Take Place?

3

Market Overview

4

 

Evolution of Social Trading Networks

4

 

Market Drivers

4

 

Challenges

5

 

Regulations

6

Social Trading Networks

8

Social Trading Platform Features

9

 

Functionality

9

Outlook

11

Conclusions

12

Leveraging Celent’s Expertise

13

 

Support for Financial Institutions

13

 

Support for Vendors

13

Related Celent Research

14

Sign in to download reports and access personalized information