Social Investing - reshaping the face of Retail FX
traders and retail traders start frequently interacting with each other, we could see some interesting things develop. To start with, the retail membership would gain access to better information about the markets. Tat would tend to make them more competitive in the trading marketplace.”
As to what the institutional traders would get out of it that sort of relationship via these platforms, Forman says in the early stages, probably not very much. “Retail is such a small fraction of the market that any information about how they are operating obtained by institutional traders probably wouldn’t be of much real value. If, however, the interaction between the two groups creates more active retail traders, that would tend to benefit the institutional side. Tis would tend to create something of a self-supporting mechanism that could eventually see retail forex traders reach a level of market influence about equal to that of their stock market peers.”
“In any case, the greater the transparency and the more information that is exchanged, the more efficient markets and their supporting mechanisms will tend to become,” Forman concludes.
Ultimately, the clue as to the popularity of these platforms is given in the title, Forman remarks: “Te bottom line for any social network is seeing what your friends are up to and being able to communicate with them. Everything really stems from this primary function. Tat said, there is an interest among retail forex traders to see information and data that is perceived to be comparable to what institutional level traders are using.”
“We’re a long way yet from retail being able to see the kind of trade and positioning information that institutional traders see, but it’s slowly coming,” adds Forman. “Platforms that move us in that direction definitely have a competitive advantage.”
New clients and increasing volumes
While Nabat comments: “I think that social investment will impact the forex market in two ways: First, it will attract new clients that are not familiar with forex to this market. When existing users are able to share their trading activity with others, they will become agents of forex trading, showing their trading results and bringing new users along to follow them. It is much easier for
Javier Paz
“Copy-trading done the right way is a brand, a brand that tries to reproduce a successful trading experience for most investors in a consistent manner.”
people to try something new if they hear about it from someone they know, and it is even easier to try it if they can actually follow the actions of this person.”
“In addition I think that the social features will increase the retention of clients,” continues Nabat. “When users are able to share their activity and be connected with other traders, it will make them spend more time in their trading platform. It will not just be about opening trades and monitoring their account; users will be able to exchange ideas, learn from other users, and discuss their activity with others.”
Paz agrees that retail traders using social investment platforms are set to boom: “Copy trading has a ‘trade multiplier’ effect on retail trading volume. I envision that in five years or so copy trading volume will be a multiple of the volume from self-directed traders, and will lead to a continued increase in the proportion of retail FX relative to the overall FX market. I would not be surprised if retail trading goes from 8% of the $4 trillion being traded daily, to 15% of the total in the coming years,” he concludes.
april 2012 e-FOREX | 179
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