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Tis notion is clearly an implicit attraction for many investors in social networks.
However, Klein of C2 feels the industry should act with caution in promoting any ideas that emulate the collective wisdom of crowds and large groups of investors, as a more reliable or informed guide to making investing decisions. “Te problem with the idea of ‘social’ is that it assumes everyone is good at having an opinion, which is really not true in the world of investing. Te opposite is true in the world of investing. Everyone has an opinion and generally everyone is wrong,” cautions Klein.
Nick Britz
“What is driving the investment communities is that you now have a new source of aggregated information that you previously didn’t have before.”
Nevertheless, Britz of Zecco says the transparency and wide pools of investor knowledge in networks – has clear benefits – which is something all networks can use to attract new users. “What is driving the investment communities is that you now have a new source of aggregated information that you previously didn’t have before. For example, Currensee is attempting to make its community knowledge useful by picking some of the best traders and letting people follow them,” he says.
Currensee, which began operations in 2009 as a social network that encouraged traders to share their account performance and obtain insight from community metrics and other members, appears to now be attracting more wealthy users than some other networks. Te average account size of $25,000 to $30,000 is two to four times greater than the size of many of its peers, according to Aite Group research.
Zecco ForexTrader Crowd sourcing
Investors in social investment networks are clearly attracted to the concept of ‘crowd sourcing – which is driven in part by a belief that the collective opinions of a ‘crowd’ of investors – made up experts and novices alike – generates a superior knowledge pool to that of a single person or small group of individuals. Paz of Aite group believes crowd sourcing could transform the way “very large masses of individuals pursue an attractive return during volatile economic conditions”.
Currensee’s success in attracting higher net-worth users could in part be a result of its Trade Leader Investment Program. “Currensee applies unusual rigor to the trade leader selection process. It receives
hundreds of applications each month, but so far has accepted only 16 people,” writes Paz.
According to Aite Group’s analysis of the social investing market, eToro is the only other network which has developed rigorous rules for qualifying trade experts or requiring them to issue signals from a live account. All eToro trade experts have to use live eToro accounts to generate trade signals, but its trade expert certification process has not yet been introduced.
october 2011 e-FOREX | 177
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