With an estimated 30 per cent of all US stock market transactions taking place every day over the Internet, is it any wonder many insiders are predicting that eventually the vast majority of trades will be done electronically?
Brokers worldwide though ironically not here are gearing up to providing customers with discount Internet trading access and are finding that they are attracting customers from countries where most stock investment has either been limited to institutional dealing or via vast unit trust and mutual companies, or where there has been very little stock market activity. Ireland falls into the first category, Russia and other Eastern European countries fall into the second.
Better access, better information and security and lower costs are attracting more direct customers. On-line stockbrokers like Charles Schwab and E*Line have 400,000 clients and are opening 500 new accounts a day, Mr Jean Yves Sireau, a director of a Hong Kong broking operation, Fortitude Services, told Reuters last week as it announced its own online dealing service would be operating by the end of the summer.
"And yet all this growth is taking place despite the fact that the Internet is still hard to use, slow and often log-jammed. In 12-24 months, when broad band width and Internet TV become prevalent, online dealing will explode," Mr Sireau predicted.
On-line dealing is catching on here, though very slowly. A former foreign exchange broker, now trading via the Internet from his Rathmines apartment, says: "I came back to Dublin last summer after working for a forex broker in London for a couple of years and decided to trade from home. It has a lot to do with luck and skill. You can be up £1,000 one day and down the same the next, but I'm a `day trader' I generally don't carry any position overnight and that reduces my risk." Internet trading involves depositing a margin with your on-line broker in this trader's case £10,000 after which they let you trade up to 50 times that amount or £500,000. He limits himself to buy-and-sell deals of no more than £100,000 and prearranges with the electronic dealing desk to stop trades if a certain level of losses is reached." In the past year the Rathmines trader (who has moved out of equities in recent months and into foreign exchange dealing) claims he has earned the same money he made in London in his last year there, but has cut his overheads dramatically with one exception. "Don't get me started about Telecom," he says. "My phone bill is £120 a week. Day traders in the States and Canada get on the Web and leave it on all day for the price of a single call." The 30 per cent telephone discounts that Telecom Eireann recently announced "will help" he says, but serious Internet dealing will only take off when charges are slashed. This trader uses the British-based discount broker CMC which at £20 a deal, regardless of the value of the trade, is a fraction of the cost of dealing with an Irish stockbroker i.e. an average of 1.5 per cent. "The Irish stock exchange is able to protect its business at the moment because it's mainly all institutional and because it's not automated. But it's not really interested in private investors because there hasn't been the volume."
By the time any volume trading develops here, British and US online brokers could have already sewn up most of the business.
