By Jenne Mannion European levels of online stock trading are exceeding even the most optimistic proj...
By Jenne Mannion
European levels of online stock trading are exceeding even the most optimistic projections being put forward by the brokerages themselves.
This was the conclusion of the latest research by Datamonitor which found that even the largest online brokerages' repeated attempts to forecast market growth were being outstripped by between 50% and 100%.
The number of online accounts is growing so quickly in Europe, that by the time an average workday is finished, Datamonitor has estimated than 466 new online accounts will have been opened in Sweden, 685 in the UK and 1,178 in Germany.
The three largest online stockbroking markets in Europe by 2002 will be Germany, the UK and Sweden it concluded and added that competition levels between the major players were accelerating rapidly.
The report highlighted firms like ComDirect and Charles Schwab were among the first to recognise the potential that rising levels of internet use across Europe could unlock for their discount brokerage business, setting up brokerages as far back as 1994.
Underpinning the fashion for online trading and its future development were stock market performance, Datamonitor said.
It put forward two different scenarios for the next two years. In the bullish version the markets will continue their record breaking advances into 2001.
As online stockbroking gains prominence, the playing field will become crowded with enthusiastic hopefuls entering the market. Fierce competition will drive commissions levels down and eventually lead to consolidation.
Online stockbrokers will have three choices in this environment, either having to diversify, or face being swallowed up by retail banks or sunk by market forces.
The successful online brokers may become niche providers, aiming their specialised products at highly-profitable segments like high net worth active traders, or day traders. Alternatively, online brokers may decide to become infomediaries by offering a wide range of products and services to their clientele.
The second scenario put forward was of a global stock market correction, followed by a prolonged bear market in 2001. In this online stockbroking enthusiasts that had been lured into the market by high returns would be scared off and the remaining customers would tone down their trading activity. This would lead to rapidly falling commission levels. In this environment, customers would begin to demand advice and information services, and unless online brokers were already in a position to provide them, they would have a hard time retaining their customers.
Strongest players in this environment would be those that have already hired the expertise and bought the services necessary to provide their customers with investment advice, Datamonitor concluded.
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