Emerald Group Publishing Limited
Copyright © 2000, MCB UP Limited
Share trading and investment on the Internet
Share trading and investment on the Internet
For most of this year, a typical days trading on the London Stock Exchange involved about a billion shares. During November trade volumes reached two billion. This growth is not a result of the growth in number of Internet share brokers (which did not exist at the start of 1998). Nonetheless the increase in Internet share trading is spectacular.
It is estimated that 50,000 people in the UK have invested in shares via the Internet and if the trend continues there could be 150,000 online accounts in the UK in March 2000. The Association of Private Client Investment Managers and Stockbrokers estimate that if this level is achieved 15 per cent of all execution-only trades will be completed online by the end of March.
Online trading is establishing itself as one of the biggest growth e-commerce sectors. Indeed, some sites are reported to be buckling under the unexpected surge in private investor share dealing. Charles Schwab reported handling 12,500 transactions on a single day in December, this was twice the daily average of transactions in October. Some of the sites visited during the research for this editorial were very slow to load and some that I was able to access one day were not available on later occasions. Some Internet brokers are reported to be restricting the number of new users.
The Investment community has been quick to dismiss allegations that the US phenomenon of daytrading will develop in the UK or Europe. Daytraders try to make quick profits by buying shares in the morning and selling them in the afternoon. It is estimated there are 50,000 daytraders in the US and 70 per cent end up loosing money. One constraint on daytrading in the UK and Eire is stamp duty. In the UK stamp duty is charged at 0.5 per cent on all share purchases, in Eire the charge is 1 per cent. In the US trading on the New York Stock Exchange and NASDAQ only incurs a charge of 0.0033 per cent on sales. Elsewhere in Europe charges are nearer the US figure and this might encourage more regular trading. For instance Zurich charges 0.08 per cent, Frankfurt DAX charges 0.04 per cent and Amsterdam, Milan and Paris do not charge stamp duty (these figures are derived from e-cortal).
In the US commission rates are also cheaper than in the Europe. However, many European sites offer free trading for the first month. Table I shows the standard cost of Internet share dealing in the UK. Several offer introductory discounts or special offers such as 30 days free trading.
Becoming an online share dealer is relatively easy. Most sites allow quick and easy online registration. An annoying feature of the Halifax service is that you have to register before you can receive information about trading terms and other details. The alternative at the Halifax site is to view a poor demonstration about the trading process. A far superior demonstration (and direct access to one of the more aesthetic sites) is available at E Trade.
Most sites offer a wide variety of services in addition to share trading. Services include online banking and the purchase of ISAs and other investments. All sites offer share dealing in UK stocks but access to stocks in other countries is limited. DLJ Direct allows US share dealing for UK taxpayers only, while Charles Schwab offers US share dealing to UK and Swiss residents. E Cortal allows access to nine world stockmarkets, including NYSE, NASDAQ, London, Amsterdam and Madrid. However, it charges a monthly fee of 7.24 euros to register for this service.
Most of the sites offer online trading information such as stock prices, access to company news, analyst reports, investment clubs and portfolio analysis. E Trade and Charles Schwab provide the most comprehensive information available at dealer sites. Information is usually accompanied by disclaimers about responsibility for information and investments. Rather strangely, particularly for new nervous traders, MyBroker's home page commences with a very lengthy disclaimer.
Specialist information sites provide more comprehensive information about investment matters. Some of these sites such as Directus and Hemscott require subscriptions (£750 or more a year and £10 per month respectively, though Hemscott offers their information for free if you use them as your Internet Service Provider). Others provide free (usually after registering) information about share investment issues such as real time share prices, historical graphs of share performance, director share dealings and analyst tips. The best amongst these are digitallook, e-traderUK, Motley Fool UK and UK-iNvest. Daytrader.co.uk, as its name suggests, is targeted at the more frequent speculative investor. Several of these sites have bulletin boards where investors discuss shares and rumours are spread. They can be a good source of ideas. But a note of caution must also be raised, several people in the US have been jailed for posting false information at bulletin boards.
More general investment information, including share-dealing issues, can be found at Interactive Investor International (iii) and FT Your Money. A very useful directory of investment sites is provided by Find.
The number of people using the Internet to invest in shares is growing spectacularly. If share prices decline it will be interesting to observe what happens to the online share dealing market after the first stomach-churning drop that many new investors might have experienced.
Table II presents a selective review of Web sites that provide details about Internet stock brokers and investment information sites mentioned in this paper. Dynamic links to these pages can be found at the De Montfort University International Electronic Commerce Research Centre home page: http://www.dmu.ac.uk/ln/ecommerce/ebrstocks.html
Paul FoleyDirector of the International ElectronicCommerce Research Centre, De Montfort University, Leicester and Visiting Professor, School of Accounting and Information Systems, University of South AustraliaEmail: firstname.lastname@example.org