Social Trading
2014/02/05
This blog post, an abstract of Celent's research note to be released in Q1 2014, will focus on the topic of “social trading” in Europe and the US, which is a method of online, self-directed trading where users connect with each other in an online setting to share investment knowledge and copy each other’s trades. With the proliferation of the internet, social media, and affordability of smartphones, the way in which clients prefer to perform banking or trading activities is evolving. The continued enhancement and development of online trading platforms, mobile apps, social media presence, and social trading platforms are at the forefront of firms’ strategic plans. Social technologies are an integral part of our lives and social generations are driving companies to realign their business strategies. Financial firms have taken notice of this overwhelming trend and have incorporated digital strategies into their agenda. Social trading platforms are relatively young companies, many of which began as brokerage sites and evolved over the past several years into network-only sites. Over the past several years, social trading has become increasingly popular, a reflection of shifting attitudes of retail investors across generations and throughout Europe in a post-financial crisis world. Like any other firm, social trading platforms face challenges to their international reach and business models, such as regulations, building trust among its users, and near-term limitations to the retail-only market. What is Social Trading? Social trading provides retail traders with access to the financial markets and other traders of varying levels of expertise. Social trading incorporates relatively expert-led guidance, while the investor still maintains control of investment decisions. Where Does Social Trading Take Place? Social trading is a global trend, but for the purposes of this report, Celent will focus on the European and US markets. Below is a sample list of conclusions that have been drawn based on Celent’s research in the social trading space:
- New business opportunities are emerging due to client demands.
- Technology continues to plays a substantial role in how businesses connect with tech-savvy clients in a cost controlled environment.
- Transparency is still of foremost concern to investors and regulators.
- Social trading negates information arbitrage that traditional banks and traders typically hold over their clients and industry players by allowing members to share local knowledge.
- Regulations around social trading vary between Europe and the US.