See What Your Neighbor is Trading with Social Finance

Trading with Social Finance

Not too long ago, the Internet observed the emergence of a new generation of websites – social networking. Those like UK-based Bebo, US home-grown FaceBook and MySpace (acquired by News Corporation for more than US$580 million) have been the pioneers to lead this genre on the Internet. It’s been a hot topic, and it’s hardly impossible to read about news on social networking here and social networking there. More recently, a new league of niche social networking websites have cropped up, tapping into all fields from sports to politics to the world of stocks and finance.

With the robust US economy combined with the strong market performance, many entrepreneurs saw the space of financial social networking untapped. According to Alexa.com, as early as March 2006 financial networking sites like Bullpoo.com, Feelingbullish.com and Stockpickr.com were born. This has not gone unnoticed. On the Wall Street Journal, Mike Gross, a 24-year-old Toronto resident discovered Bullpoo.com in 2006, and says he started actively using the site to get investment ideas about stocks and sectors — such as Asian stocks — from other members.

These websites help like-minded investors interact with each other and share investment ideas, from writing personal blogs to opening up a transparent portfolio. Users are then ranked by other community members based largely on their contributed content and accuracy of stock picks and forecasts.

It’s a large space that has been attracting a lot of media attention in recent months. With an average of a US$1.14 million investment portfolio, and over 70% of a 78 million baby booming market browsing the internet for personal finance and investing sites (according to Kiplinger’s Personal Finance Retirement Report 2005), its no wonder that many major media companies and brokerages are getting interested in entering this space.

Zecco.com, a US-based online brokerage launched in October 2006 offers commission-free trading, saying that it leverages its social community to generate advertising revenue to support its free services. Elsewhere, Reuters announced that it too is also planning to launch its own version of MySpace this year, as published on the Guardian Unlimited. But critics like Charlene Li, an analyst at Forrester Research Inc., say that risk of fraud is high from discussing your financial affairs with online strangers. What’s more is that the usefulness of the sites depends in large part on the size of the communities. And so, while having a large audience, the sheer size and diversity of services of companies like Zecco.com and Reuters might make it difficult to manage the focused communities they want to create. On the other hand, startups like Bullpoo.com and Feelingbullish.com may be nimble enough to stay in touch with their communities, and avoid the risks that larger companies encounter. The question of who will take over this rapidly expanding market is still up in the air. Will the small companies, which lack experience, funding, and exposure, be able to stand up to the media and financial juggernauts? Perhaps a successful middle ground lies in the combination of their strengths: the focus and creative flexibility of the startups with the resources and expertise of the corporations.

The web has been changing the way we exchange information in revolutionary ways, and challenged the traditional mindsets of the media and the way we use it. Who would have thought that the most comprehensive encyclopedia is managed by anybody and everybody who wants to write something? Yet Wikipedia has proven that a self managed community can be successful in administering such a complex information source. Can the same apply for social finance? Is it truly dangerous as some analysts portend?

Finance has always been a conventional field. Perhaps it’s time it explored this new territory. I’ve enjoyed trading actively on my virtual portfolio, so I’ve tried it, and I’ve liked it.