Something in commonZecco.com--the name stands for zero commission costs--offers free stock trading through Zecco Trading to customers for their first 10 trades a day and 40 trades a month. Options trades cost US$3.50, plus US 60 cents per contract. Its biggest revenue source is interest earned on margin borrowing by its customers, says Gabriel Dalporto, Zecco's chief marketing and strategy officer.
Zecco Trading also allows customers to see what other customers are buying and selling as part of the individual user profiles, which also include preferred trading strategies. Users can contact each other and form relationships based on shared stock interests or investment approaches.
For Tom Sosnoss, president of thinkorswim.com, 80 percent of those transactions are options. It is the very complexity of options, which do not lend themselves to clear black-and-white solutions, that encourages participation in an investor community. Although it has a Web-based platform, most of thinkorswim's functionality is in its software and 95 percent of its customers use the software, which is free.
Not another facebookThrough a sophisticated technology platform that includes live audio, enabling customers to go into separate rooms to discuss a particular strategy, thinkorswim, a unit of Investools that launched to its first customers in late 2000, emphasizes investor education, which it is confident generates more transactions.
"The thing that intrigues customers is they like to be challenged intellectually," Sosnoss says. "When they're challenged, options traders become a successful community."
But Sosnoss eschews the idea of "social networking" which makes him think of his teenage kids surfing Facebook. He believes the reason people are communicating on thinkorswim.com is to learn how to be more effective traders, not to gain a sense of community for its own sake. "We build trading networks. Really what it is, we build technology that drives domain knowledge. The way you do that is you provide a network for customers to interact with you, as well as with each other," he said.
Listening to the feedbackBut O'Malley at Battery Ventures Partners argues it is hard to start with technology and assume that people will adopt it. "You have to start with well-understood social practices. Then you try to take technology to facilitate those practices and adjust the technology as you roll it out, as you see how people are using the technology," he said. TradeKing has been refining the technology on its Web site since it launched. Many of the new features it will add in mid-September, such as the ability to turn on the certified trades function without revealing the amounts bought or sold, are based on customer feedback on the blogs.
Until now, TradeKing user Jim Collins has not used the certified trades feature. "The actual dollar amount is something I'm not comfortable showing, but if they get that functionality (to hide the amounts) up and running, I'm ready to go," he said.
Future innovations that Zecco and TradeKing are working on will allow investors to form groups centered around common stock interests or trading strategies. And farther down the road, TradeKing plans to roll out a tool that allows users to search returns on investment and see which customers have been most successful over time.
One sign of the refuge some nervous investors are taking in online investor communities is the jump in volume of option trading at TradeKing on especially bumpy market days, says Montanaro. "They get some comfort and validation. People enjoy seeing both sides of experiences when markets are especially turbulent," he said. But Montanaro makes it clear that any technological innovations that TradeKing adds will be to drive higher usage and therefore greater profitability.
A tip from a friendCollins, who worked for 10 years on the sell side for brokerages like Lehman Brothers and Donaldson Lufkin & Jenrette, said he has been getting investment ideas from people commenting on his blog posts. When he reported an interest in engineering and construction companies and that he had a "huge win" from buying options ahead of Foster Wheeler's first-quarter earnings, somebody recommended Perini to him.
"(In the second quarter), the earnings went through the moon. I sold it with a 100 percent gain yesterday," he said. "Without that comment, I probably would never have unearthed Perini. That's a tangible example of an investable idea."
Whether these sites can truly unleash the wisdom of the crowd for market players remains to be seen. But you can bet that in investing, as in other corners of the Web, the urge for community will grow stronger--and the bigger players in online trading may have to respond to upstarts like TradeKing and Zecco.
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I have been an active stock blogger for almost five years at Stock Picks Bob's Advice. One of the utilities of a social investing website, and I use Covestor at www.covestor.com, is to create the credibility that a third party verification provides for my readers. When I comment about stocks I own, readers now know that this can be verified. When a blogger writes about strategy, they can ask the tough question, "Well how are YOU doing in the market?"
Posted by Robert Freedland on Tuesday, September 11 2007 06:24 PM