Erin O'Brien and her friends are do-it-yourself investors.
As part of an online community at the brokerage Zecco, they consult each other on terminology, tax law and investment philosophy. Having tagged each other as “friends,” they can see each other's trades. Together, they're learning the ropes by watching and interacting with fellow users.
Zecco and TradeKing, which tout themselves as among the first brokerages to offer online social networking, are adding functions that go beyond the typical discussion board. Traders at both companies can reveal their portfolios and see how their performance rates among other users.
Just a year after O'Brien started trading, the 27-year-old teacher from San Francisco is ranked in the 20th percentile of Zecco traders with a 16.6 percent return on investment.
“This adds a competitive aspect, which can be motivating,” said O'Brien, who invests about $200 a month. She uses the 10 free trades allowed monthly by Zecco, and views the account as a learning tool, investing only what she can afford to lose.
O'Brien can research the shares of a company by identifying which of her friends own the stock. This also reveals the other stocks in their portfolios, which gives her additional investment possibilities to look into. Over at TradeKing, users can add notes explaining why they made particular trades.
Now, larger firms like Scottrade Inc. and TD Ameritrade Holding Corp. are introducing social networking functions.
By letting clients interact online, brokerages are encouraging newcomers who might otherwise be leery of diving into an unfamiliar arena.
Unlike chat rooms and message boards, brokerage sites verify users' identities, reducing the tendency for spam or scams to drive up stocks. For those who know zilch about stocks, it's a space where no question is too basic. (What, for example, is a dividend?)
The idea of people gathering to talk about stocks is nothing new. Investment clubs, usually a small group of people who meet periodically, have been around for decades. But their popularity has declined, with only 13,000 such clubs today, down from 20,000 in 2002, according to the National Association of Investors Corp.
Online groups not only give access to a bigger pool of people, but also let users participate on their own time. It's no wonder groups such as “Afraid to Trade,” “Newbies,” and “Beginning Investors” are among the most frequented on Zecco and TradeKing. The most popular discussion thread at Zecco is for “New Investors.” On TradeKing, a popular recent forum was “Need A Mentor.”
“(The chat rooms) let me know what to look up, where to go,” said Kim Seiniger, a 52-year-old music industry executive. Seiniger, who lives in California, is tagged as one of O'Brien's friends.
Seiniger, who says she's still learning about trading, has more than $15,000 of her disposable income invested in stocks. She uses the groups as a starting point to find answers, but does her own research, too.
More users are taking part in online brokerage communities. Zecco says a third of its 85,000 users are active in community groups. And about 10 percent of TradeKing's 100,000 users are active in groups – meaning they visit forums and set up public profiles.