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276 SECURITIESTRADING ON THEINTERNETinvestors go almost “anywhere they like.” These opportu-
nities include:Real-time information, which facilitates greater invest-
ment agility
Information sources beyond a human broker who may be
biased by commission-driven self-interest
Low-priced trading
Membership in investor “communities” developed by spe-
cialized message boards and chat rooms.The mass media’s ubiquitous attention to finance in
the late 1990s added to investors’ sense of belonging, and
conversely, to nonparticipants’ sense of missing out on a
pervasive cultural phenomenon. Only three negative fac-
tors lessened the attractiveness of online investing:The relatively impersonal nature of online trading
Potential concerns over the security of data from both ex-
ternal and internal piracy—better known as “hacking”
Worries over the use or misuse of sensitive personal and
financial data—the critical “privacy issue” that chal-
lenges all of e-commerce.Real-Time, Unbiased Information
Information—voluminous and timely—is the siren call of
the Internet. A variety of publishers and vendors have
made financial information available online that used to
be inaccessible to the individual investor, from indus-
try and company research to real-time stock prices. Of
those polled by theThe UCLA Internet Report—Year Three,
21% cited information as their reason for starting to use
the Net in the first place, making it the #1 motivator re-
ported; 90.6% of those respondents said they considered
the Internet a “moderately, very or extremely” important
source of information. Their trust in the veracity of on-
line information is not unquestioning, but it is surpris-
ingly strong: 39.9% of Internet users considered “half”
of online information “reliable and accurate” and 50.6%
regarded “most” online information as reliable and ac-
curate. Merely 7.2% endorsed only a “small portion” of
online information and 0.2% believed that “none” was re-
liable and accurate. (Note that this question referred to
all information, not financial data exclusively.)Low-Priced Trading
From the very beginning, online stockbrokers leveraged
the low cost of digital distribution into low-priced ser-
vice offerings. Pioneer brokers such as E*Trade and Amer-
itrade passed technology-driven savings along to cus-
tomers and undercut the commissions of even discount
“bricks and mortar” brokers such as Charles Schwab.Community
In addition to commercial research and professional anal-
ysis, the Internet offers virtual collaboration for gather-
ing and evaluating information. Investors are now able
to share financial news, opinions, and preferences on a
variety of Web sites that offer message boards and chat
rooms. It has often been said that e-commerce empowers
the consumer. Online investing, by “disintermediating”the traditional broker, shifts the power—and the
responsibility—for investment strategy and tactics to the
individual investor. The sense of community derived from
bulletin boards and chat rooms provides the personal
touch that is missing from this relationship. Peer-to-peer
consultations—especially when not face-to-face—allow
the investor both anonymity and reinforcement. The best
peer-to-peer financial sites offer basic tutorials to bring
novices up to speed so that they may comfortably take part
in discussions. For the knowledgeable participants, online
debate and commentary can point out new opportuni-
ties or risks and can fine-tune their investment choices.
Furthermore, the social value of sharing information
and developing communities online has been well doc-
umented as enhancing the attractiveness and “stickiness”
of a Web site by building social relationships in virtual
space (Hagel & Armstrong, 1997; Martin, 2002). Many
have speculated that, in a climate of escalating terrorism
around the world, the need for human contact increas-
ingly will be met though distance communications rather
than through physical proximity.Security and Privacy
Other threats, however, mitigate the physical safety of
online investing. Worries about security from theft or
misuse of sensitive personal information have long been
barriers to Internet and e-commerce adoption. Year af-
ter year, marketing research has shown that “security”
and “privacy”—often undistinguished in respondents’
minds—were the primary reasons given for not exploit-
ing the Web’s shopping convenience, and they remain
salient even among online shoppers and investors. The
The UCLA Internet Report—Year Threeindicated that se-
curity and privacy concerns still exist among “very ex-
perienced” (more than 5 years online) and “new” (less
than a year online) Internet users alike. Of very experi-
enced users, for example, 48.2% reported that they were
“very” or “extremely” concerned about the security of
their credit card data—a clear parallel to other financial
information—whereas 78.6% of new users expressed that
high level of concern (p. 50). (It is interesting to note that
overall concern about credit card security had dropped
from 2001 to 2002, with 71.3% saying they were “very or
extremely concerned” about the issue in the former year
and 63.3% in the latter.) Moreover, 81.6% of those already
purchasing on the Internet were “somewhat,” “very,” or
“extremely concerned” about the safety of that personal
information, a privacy issue. Because most people con-
sider personal income and wealth among the most sensi-
tive of information categories, security and privacy must
remain critical issues for e-finance providers and their
customers. Disturbingly, Forrester Research found that
only 70.9% of online investors were “somewhat or very
satisfied” with the clarity of their primary brokerage firm’s
privacy policy (Table 1).HISTORY: 1992–2002
Strands of the Web
A spider’s web is stronger than it looks. Although
it is made of thin, delicate strands, the web is not
easily broken. (Charlotte’s Web,p.55)