Stockbroking on the Internet: Evolution of the electronic trader

THE OLD image of the stockbroker was of a chap - remember women did not exist in the City then - who arrived at the office with his bowler and briefcase in time for his mid-morning tea, had a longish lunch with a client, which the client paid for one way or another, and then went back home in time for afternoon tea. The Eighties put paid to all that, and gave us loud-mouthed yuppies with even louder braces.

Now, a mixture of social and technological developments are likely to put the yuppie stockbroker on the endangered species list. The social developments are there for all to see. We are being increasingly exhorted to fend for ourselves financially, even by New Labour.

The state has more or less reached the limit of what it can do to provide for us all, which means more responsibility is being thrust on the individual. That means we have to look after our own pension provision, our own long- term care and our own financial security. The mesh in the safety net now has larger holes.

Add to that social imperative the technological developments of the cheap personal computer and the Internet - not only has greater financial responsibility been thrust on us all, but also we actually have the power to do something about it.

Internet penetration and the use of computers in the UK is following the path already trodden in the US. In percentage terms of market penetration we are now where the USA was two years ago and more of us have regular access to the Internet than any other two European countries put together.

You should already know that the Internet can be an incredibly powerful information resource. It is the ability to access this information, take advantage of the knowledge it confers, and make your own investment decisions, which will lead to the demise of many of the broad-braced brethren of the City.

Stockbrokers offer three types of service: execution-only, advisory and portfolio management. Unless you are sitting on a sum of money in the high six-figure region, the costs of having your portfolio professionally managed are unlikely to be worthwhile. Most of us must make the decision between execution-only and advisory services and, until the past couple of years, we had the choice of dealing over the telephone or by post.

However, in the past two years, the growth in Internet usage has seen an increasing number of stockbrokers setting up websites to attract clientele in cyberspace. Of the firms with presence on the Internet, a handful of UK brokers offer dealing services. They are not going to be in the minority for very long. The first online dealing services were little more than an alternate way of contacting your stockbroker. If you were going to buy or sell shares, instead of calling on the telephone, you sent what amounted to little more than a glorified e-mail.

On receipt of your message a stockbroker would read it and then make the trade for you. E-mail is obviously faster than the Royal Mail, but such services offer few attractions over existing telephone-based dealing operations.

What has changed in the past few months is that you can now execute your own trades. Instead of sending an e-mail to a stockbroker requesting the sale or purchase of shares, you are making the actual trade yourself. Through a link ultimately to the Stock Exchange's own computers you deal immediately at the price you see on your screen. The first such fully automated web-based trade in the UK market took place at 9.11am on Monday, 14 December, via the brokerage Charles Schwab Europe.

Let's take another look at developments in the US. Three years ago, Charles Schwab launched its online trading venture. It is now the biggest in the USA with 2.24 million online accounts and $174bn (pounds 110bn) under management via the Internet. In January, Schwab clients executed an average of 153,000 electronic trades every working day.

Schwab is not alone. There are now 112 online brokerage firms in the USA, offering individuals the ability to trade in stocks and shares. Between them they have almost 8 million individual customers.

Christos Cotsakos, chairman of the US's third largest online firm, E- Trade, says: "The old traditional brokerage model assumes people are dumb. They get charged a lot of money for the advice and counsel. Our model is: people are inherently smart. We liberate you with information, charge a value-added price, let you become self-directed and have you handle your financial services."

Charles Schwab, through the purchase two years ago of Birmingham-based Sharelink, now Charles Schwab Europe, is at present the leading online brokerage in the UK. E-Trade is also aiming at UK investors, having taken control of an online broking business, Electronic Share Information, in June 1998. One unlooked-for outcome of the explosive growth of individual involvement in the stockmarket in the USA is the "day trader" phenomenon. These are the people for whom a long-term investment is one they are still holding when the market closes.

This kind of frenzied market activity helped to propel share prices in the USA to record highs and, in particular, has allowed firms involved with the Internet and the worldwide web that make little or no profit to gain market capitalisations on a par with some of the largest and most profitable companies on the market.

Such activity goes against the accepted wisdom of shares being a long- term investment. Indeed, it is highly unlikely to be the way to long-term financial security, since day traders are solely relying on movement in the capital value of the shares. It takes no account of the income potential of the shares or of the quality of the business. If you plan on building a nest egg for the future, this is not the way to behave.

UK Stockbrokers Online

Real time online trades

Charles Schwab Europe:

www.schwab-worldwide.com/ Worldwide/Europe/

Stocktrade (Brewin Dolphin Securities):

www.stocktrade.co.uk

Barclays Stockbrokers*: www.barclays-stockbokers.co.uk

*launching in April

Other broking services

Caves-on-the-net (Cave & Sons):

www.caves.co.uk

Fastrade (Torrie & Co): www.fastrade.co.uk

James Brearley & Sons: www.jbrearley.co.uk

Xest (Charles Stanley): www.xest.com

Start your day with The Independent, sign up for daily news emails
News
peoplePair enliven the Emirates bore-draw
Arts and Entertainment
tvPoldark episode 8, review
News
Britain's opposition Labour Party leader Ed Miliband (R) and Boris Johnson, mayor of London, talk on the Andrew Marr show in London April 26
General electionAndrew Marr forced to intervene as Boris and Miliband clash on TV
News
news
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
Public relations as 'art'? Surely not

Confessions of a former PR man

The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

Bill Granger's luxurious sweet treats

Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

The mother of all goodbyes

Paula Radcliffe's farewell to the London Marathon will be a family affair
Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

Steven Naismith: 'We know we must do better'

The Everton forward explains the reasons behind club's decline this season
Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

Michael Calvin's Last Word

Praise to Wenger for having the courage of his convictions