Game On

Once upon a time, finance, like health, was a private matter.  Discussions regarding personal financial decisions were conducted largely behind closed doors - between spouses or between individuals and their financial planner, broker, or accountant. With the advent of the World Wide Web and the creation of investing chatrooms and personal finance websites such as The Motley Fool, financial matters began to become a bit more public.  Perhaps it was the perceived anonymity of the Web, or the interaction with strangers who would not pass judgement, but having personal financial discussions in cyberspace became increasingly acceptable.

As finance in general became a social matter, a parallel phenomenon unfolded in the retail securities brokerage space.  Information technology revolutionized and even democratized financial services in the roaring 90s, and the rise of daytrading gave birth to the idea that "playing the markets" was a potential way for patient, disciplined traders to eke out a living.  The wild bull market of the latter 90s, and a frothy IPO market only served to bolster this belief, and "casino capitalism" continued to progress.  Surprisingly the eventual dot com explosion did little to dissuade the day trading appetite among investors, and as opportunities in equity markets dried up, enterprising companies sought to democratize a new asset class: foreign exchange.  A multitude of brokers popped up during the early and mid-2000s offering access to this trillion dollar marketplace at affordable rates.  Whereas the highly volatile FOREX markeplace was once the province of central banks, banks, and multinational corporations, it is now a playground for small investors with as little as $250 to trade.  FOREX is now one of the most popularly traded asset classes among retail securities traders.

Today, finance is truly social.  KaChing, Covestor, Zecco, and TradeKing are examples of both brokers and asset managers whose business models are actually built on a social media platform. Others have bolted on social media to enhance their value.  Despite the explosion in social media over the past three years, however, brokers and asset managers have lagged behind in terms of innovation, adoption, and the number of home runs in the space.  Of course, they can be forgiven for this - the industry has had bigger fish to fry.  Things like solvency and survival have understandably trumped IT spending..

What, then, is the next phase in the evolution of retail brokerage?  As finance continues to become more social, more interactive, and brokers offer increasingly lower commissions and cutting-edge trading technology, the securities brokerage landscape is changing.  Lowering commissions means emphasizing volume, and that means encouraging not an old-school buy and hold approach, but high frequency trading.  This fundamental change in philosophy is justified on a daily basis by unprecedented volatility in the financial markets, and reinforced daily by the new financial media - bloggers, twitters, and vloggers who publish up-to-the-second trade ideas designed to exploit short-term movements in stocks and FOREX.  This, coupled with social features that enable traders to mirror the trades of other "players," provide real-time ideas and analyses to followers, and even compete for prizes and a spot on the "leaderboard" can only mean one thing: financial services is rapidly become the next frontier in social gaming.