Need the Speed for Greed
Forbes.com
Nowadays, the Big Board regularly sees more than 1 billion shares changing hands each day. The Nasdaq often sees 2 billion shares of volume on its electronic exchange. And for every additional share in volume, online investors feel the heat. Trade confirmations are up in the air. E-broker Web sites sporadically crash. Customer service wait times exceed one hour.
Web based e-brokers simply don't make the cut and picking up the phone is obviously not a suitable alternative. The markets are simply too massive and too volatile. These middlemen, the brokers, act as bloated transaction hubs and become enormous bottlenecks in the financial markets. As we move toward a ubiquitous network, why are investors embracing firms that intermediate financial exchanges and take control out of the hands of the individual?
Imagine the unpleasant scenario of a major market crash. You're in the car driving to work when the business newscaster announces that the S&P futures are down hard. Foreign markets plummeted overnight. The Fed is warning that the bull run is dead. General Electric reported disastrous earnings. You bite your nails at work as the clock ticks toward market open. Ding, ding, ding! The indexes immediately begin to tank. By 9:45 AM the Nasdaq is down more than 150 points and the Dow has lost more than 200. The fun has come to an end.
You decide to log on your e-broker and liquidate your positions. Gold isn't starting to look so bad, after all. You enter the URL: "www.bignamebrokerhere.com." Depending on your affinity to Microsoft or Netscape, the globe on your browser spins or the solar system rotates as you patiently wait for the broker home page to load. But your globe keeps spinning. The planets keep passing by. You try again: "www.BIGNAMEBROKERHERE.com."
Welcome to online investing hell. It's the day the music dies. The day when the Web's unreliability and the industry's excessive growth come to bear on investors all around the globe. But no sense fretting over Wall Street philosophy--the market is continuing to freefall. You pick up the phone and dial: 1-800-BIG-NAME. An insanely pleasant automated voice answers on the other end. "Welcome to Big Name Broker. Due to excessive call volume, hold time may exceed two hours. At Big Name Broker, customer service is our number one priority."
By 12:00 PM you've finally connected to a representative. You manage to sell all your positions, though by this point most of your shares are off by 30% or more. You vow to keep your cash under a mattress and never dabble in the public markets again.
If this scenario seems impossible, you are either a bull-headed bull or a naive technology optimist. While perhaps not to the above extreme, lockouts are occurring on a regular basis. The e-broker Grim Reaper seems to strike a different firm every day. It's only a matter of time till you get burned. But whom can you blame? A few years ago, e-brokers may have seemed like godsends, giving individual investors unprecedented access to the markets. Nowadays, we argue that e-brokers are merely a roadblock, a barrier to Wall Street riches.
Indeed, while the bandwidth crunch may never be avoided on extraordinary high-volume days like the theoretical crash described above, it is possible to take greater control of your investments. As more and more investors recognize the inadequacy of Web-based e-brokers, an industry shift will occur and non browser-based systems will proliferate.
These trading systems are stand-alone programs that give investors and traders alike direct access to the market. You probably see daytraders typing away at these programs when CNBC pans the trading floor at any of the numerous trading firms around the country. But "daytrading" is moving away from the scalping world of 1/8's and 1/16's and embracing a new world order of smaller blocks of stock and bigger moves. As this transition occurs, more and more "investors" are realizing the benefits of making calculated, intelligent bets on short-term moves. Even Schwab, the granddaddy of Web-based investing, is jumping on the bandwagon with its recent acquisition of active trader firm CyberCorp in early February.
Our guess is that the majority of online investors are fairly frequent traders, moving in and out of stocks at least three times per month. Even at this fairly low level of account activity, it may be worthwhile for investors to utilize a non browser-based system. Sure the Web is a great medium for news, gossip, horoscopes, chat, e-mail, games, and the like. But for dynamic, real-time, data intensive applications like quotes, charts, trading, and financial analysis? Don't you think your fiscal security is worth an extra download? Doesn't it sound appropriate that your wealth would be managed by a separate sophisticated piece of software? Why bet your finances on the whims of the Web? |
