Saturday, September 8, 2007

Social networking brokers

Some of the newer online brokerages are building out extensive social networking features.

While their concepts and tools may differ slightly, TradeKing, Zecco Holdings, and thinkorswim all operate on the premise that the networking features they offer encourage more trading. On TradeKing and ZeccoShare, the social networking portal of Zecco Holdings, members create profiles that show their investing strategies, key stocks they follow, and if they wish, their recent trades. TradeKing users can even publish blogs to share their investment ideas and thoughts about market conditions.
I haven't investigated these brokerages in detail yet, but I'm always apprehensive of anonymous investment information. I've followed several stocks in the Yahoo! Finance message boards, and while there are occasionally gems of information hidden in posts, I find it to be mostly name calling among posters or unwarranted cheerleading of stocks. The story gives some details on how these brokerages will try to prevent that from happening.
The growing popularity of these sites raises questions about security. TradeKing is governed by the new Financial Industry Regulatory Authority (FINRA). TradeKing keeps FINRA informed of new features, such as the year-old certified trades function, which shows the quantity and price of actual shares traded by customers. "Being a regulated entity, this would be a stupid place to perpetrate a scheme because you're creating a trail attached to your name," Montanaro says.

TradeKing officials also review every blog entry and remove unethical or potentially harmful comments. The company has no suitability rules beyond the warnings listed under the disclosures and terms and conditions tabs on its site, which customers are supposed to read before opening an account.