Technological change drives better trading

THE latest foray in the ongoing battle of technology that has griped retail trading since the invention of the internet comes from IG Index. As part of its shiny new Insight portal, it is releasing details of its clients’ net positions (see right for an example of the information now available). More information and collaboration is a good thing – but remember: the responsibility for when and how to trade always rests on the shoulders of each and every trader.

IG Index isn’t offering the same as either eToro or Currensee, in which you follow specific traders and build social networks, but is yet more evidence that retail trading in the future will require information in an easily digestible format, delivered in an increasingly open and social format. Insight gives clients a view on the most traded markets, how many people are long or short and what other markets they have traded. David Jones of IG Index notes that clients have been grabbed by aggregate trade data: “Clearly this can be used to gauge the sentiment of fellow traders and decide whether you want to join them – or if they are all barking up the wrong tree and you want to use it as a contrary indicator.”

Over the years, retail traders have embraced technology. Angus Campbell of Capital Spreads notes the advent of the internet was the biggest shake up, as this led to the boom in online trading and investing: “As internet websites were popping up everywhere in the late nineties and early noughties, so too were online trading sites with spread betting companies leading the way.”

Christopher Beauchamp of IG Index believes “increased information about how other traders are positioned will also develop.” He says traditional bulletin boards have provided traders with a place to share their thoughts and views (with the usual caveats about bias), but there are new ways of learning from others.

MORE WHEAT, LESS CHAFF
Stepping back from IG’s specific offering, it should be noted that information and socialisation comes with risks – traders need to pick the right information and devise and execute their own trading strategy. Brenda Kelly of CMC Markets says “examining trade volumes is an important consideration; however, looking at what others are doing in respect trade set up and directional tips should be something of interest – but I don’t feel it should necessarily sway a trader one way or another.” GFT’s David Morrison thinks “it is important for traders to do their own homework to sift out the good from the bad, or downright ugly”. However, despite these caveats, Kelly notes that “information and ergo knowledge is power”, while Morrison says “despite the danger of information overload, this is a small price to pay for this level of access.”

Beauchamp thinks “sifting the real information from noise and opinion is key, and individuals need to remember that there will always be someone with a different opinion – two opinions make a market, as the saying goes.” Ultimately it’s up to each trader to decide what to do.

Price is paramount, so the bid-offer spread should always be critical in determining platforms. However, spread betting and contracts for difference providers will increasingly be differentiated by the way that their clients interact with the information they provide and with other clients – this is an opportunity to offer very different services catering to different demands.

Providers want traders to be successful – they are hedged and make money on the spread. As such, interests are aligned to create a future of better – and hopefully more successful – trading environments. But it’s not it’s others’ job to develop the technology – traders need to focus on getting the most out of their trading experience now.