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Friday, 12 January, 2001, 10:28 GMT
Online share trading wilts
Trading graphic
Online share trading has suddenly fallen from favour
The hefty losses suffered last year on leading share indexes have hit online share brokers doubly hard.

Not only have they seen their share price diminish, but their clients have also been frightened off by the negative investment climate.

During October to December last year, customer growth slowed markedly, and some of the biggest online brokers on both sides of the Atlantic have begun to cut costs, growth forecasts and staff.

The news of slowing growth is especially critical for these companies which depend entirely on commission for revenue.

Fewer opportunities

Online brokers attribute the trend to the more general reluctance to place money in falling stock markets, rather than a deliberate spurning of the internet medium.

We do not find customer development satisfactory. I simply want more.

Karl Matthaus Schmidt
Head of Consors
But online share traders are more likely to be punters looking for a quick, hassle-free opportunity to make some fast cash.

And those sort of opportunities are few and far between at the moment.

And the longer-term investors in shares tend to turn to a personal stockbroker who they know and trust for help with managing a portfolio.

"The online segment is being affected more than voice broking," a spokesman from Charles Schwab - which offers stockbroking via the internet or via the telephone - told BBC News Online.

Charles Schwab, a leading online broker in both the UK and the US, suffered the humiliation of a downgrade by Morgan Stanley Dean Witter on Wednesday.

The brokerage has already indicated that it is unlikely to meet expectations for its fourth quarter earnings, it has cut salaries and ceased hiring.

Not meeting the targets

"We are not insulated from the general investment environment," said the spokesman, refusing to give any projections for future growth.

And a slowdown is also evident at Germany's biggest online share trader, Consors Discount-Broker, which has publicly declared itself dissatisfied with its own growth rate.

"We do not find customer development in the fourth quarter of the year satisfactory. I simply want more," said Karl Matthaus Schmidt head of Consors.

UK online share trades
Q1 1999 - 31,000
Q2 1999 - 51,000
Q3 1999 - 152,000
Q4 1999 - 377,000
Q1 2000 - 960,000
Q2 2000 - 648,000
Q3 2000 - 634,000
source: Compeer
The number of new customers using the Consors system, which is also popular in wider Europe, increased by only a fraction in the fourth quarter, adding just an extra 26,200 to its exisiting base of half a million clients.

Other companies beginning to cutback include US' Ameritrade Holdings and Sweden's Avanza, both of which have slashed workforces.

In the UK, fourth quarter internet trading statistics are expected to be more or less the same as the previous quarter, but this represents a sharp decline over the first quarter of the year.

Richard Bethell of the Independent Research Organisation, Compeer, attributes the strength of the first quarter to active traders who just disappeared when the stockmarkets turned bearish.

But despite the slowdown in growth, online share trading in the UK has still gained in leaps and bounds over the previous year.

Eased execution

Online share trading boasts increased ease of execution and speed.

This efficiency should lead to lower operational costs than traditional stockbrokers, and this in turn leads to reduced commission.

But intense competition between online share traders has already led to price wars over commission charges.

And with low commission charges, the companies rely on a large number of transactions to bring in the cash that keeps them in business.

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See also:

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18 Nov 99 | Business
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Internet share site 'a fraud'
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Day trading comes to London
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