Online Trading Continues to Catch On in U.S., Europe

The number of U.S. households using an online trading service hit 3.5 million in January, according to J.D. Power, and the growth in this market is even more explosive in
Europe, says a report by Datamonitor.

The number of U.S. households that use an online trading service has risen from 2.7 million in May 1999 to 3.5 million in January 2000, a 30 percent increase, according to J.D. Power and Associates.

The 2000 Online Trading Investor Satisfaction Interim Tracking Study by J.D. Power found that the new entrants into the online trading market are primarily baby boomers with investment portfolios of $100,000 or more. The study also found that new online traders are evenly divided between the full-service firms that offer online trading service and firms whose primary business is online trading.

“It is virtually a 50/50 split,” said Andrew March, director of financial services at J.D. Power and Associates. “These customers have numerous options, and neither type of firm has overwhelmingly captured the hearts and minds of new traders. The battle rages for an increasingly affluent investor segment.”

Among all online traders, average portfolio size increased 32 percent to $157,000 during the eight-month period between the original and interim reports. Another notable finding of the study is that one-stop shopping is a service that has not yet taken hold among online investors.

Only 15 percent of study respondents use their online trading firm as a source for virtually all their financial needs, and of the new entrants into the market, only 12 percent use their firm in this way.

“It still comes down to dependability through providing superior service and support with market and investment education,” March said.

The J.D. Power study is based on direct consumer feedback from a representative sample of 6,704 online investors nationwide.

In Europe, the growth of the online brokerage industry is surpassing even the most generous forecasts. According to research by Datamonitor, in the average workday, 466 new online accounts are opened in Sweden, 685 in the UK, and 1,178 in Germany.

Datamonitor’s report “Online Stock Trading in Europe: Rapid Growth into an Uncertain Future” found that Germany, the UK, and Sweden will be the three largest for online trading in Europe by 2002.

According to Datamonitor, the most important factor in the development of the online stock trading market is the performance of the stock market itself. If the markets continue their record-breaking advances into 2001, Datamonitor predicts fierce competition will ensue, driving commission levels down. This will force online stockbrokers to either specialize or diversify, or face being swallowed up by retail banks or sunk by market forces.

Should the global markets suffer a correction and an ensuing prolonged bear market, Datamonitor says the online trading enthusiasts lured into the markets by high returns will be scared off and the remaining customers will pare down their trading activity.

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