Why the United States reigns supreme in stock trading compared to the rest of the world.
Online investing is popular—and still growing. With a number of brokerage firms slashing their costs to zero, it’s easy to see why it continues to grab market share from traditional brokerage firms.
In the United States in particular, there are a number of reasons why trading stocks online is so popular, and so common.
First, online stock trading is based off of technology—and American culture embraces technological development faster than the rest of the world. The United States developed the internet out of ARPANET, the Advanced Research Projects Agency Netwrok, largely as a military project. However, the developers used the same tools to create a way of communicating digitally, and the commercial aspects led to the gradual creation of the Internet.
As the internet, short for integrated network, proliferated, one way of utilizing it came in the form of trading stocks. The internet could even provide for live or near live prices for stocks, something that replaced the ticker tape machine or having to sit in front of CNBC waiting for a price change in a specific stock to go by. With the faster data and ability to bypass a traditional broker, it’s no wonder that the American embrace of technology allowed online trading to take off.
Second, online stock trading is so popular in the United States thanks to its cultural legacy of trading and speculating—something the rest of the world simply doesn’t have in as much abundance. For instance, 52 percent of Americans have some kind of exposure to the stock market, whether through a brokerage or a work program like a 401(k) or 403(b). When hearing these statistics, most would lament that nearly half the population is missing out on the wealth-creating potential of the market.
However, those numbers are high relative to the rest of the world. Germany, another advanced industrialized nation with GDP per capita in the top 10 globally, only sees about 20 percent of its population with exposure to the stock market. The culture of hard work and thrift in Germany translates into an investor class more interested in the certainty of bonds rather than the uncertainty of stocks. In some years, this caution pays out well, but in most years, it means lagging returns relative to those that invest in stocks.
Finally, there’s the cost. Relative to trading with a traditional brokerage, which needs to have ample staff to handle calls and paperwork, online trading bypasses these gatekeepers, and in so doing has always had a built-in price advantage. While early online trading platforms started from low-cost brokerage providers like Charles Schwab, these brokerages were able to get costs down even further by not having the need for analysts or other research staff, allowing individual investors who had done their own research to benefit from these trends.
American ingenuity has always been about pushing prices down, so it’s no surprise that the cost of trading plummeted as the cost of computing did as well—and why it became so commonplace in the home.
In short, the American embrace of stock market speculation, improving technology, and lowered costs, have led to the rise in the popularity of online trading.
The Road Ahead
With online brokerages now slashing their trading costs to zero, what can the trader of tomorrow expect?
For starters, many online brokerages are also offering courses and videos to help investors improve their performance. Rather than get away from the transactional nature of a few stock traders, brokerages recognize that developing long-term relationships in the digital age requires new tools—ones that ordinarily would have come from the aid of a full-time, flesh-and-blood broker.
These tools include built-in screens to find a variety of investment opportunities that fit an investor’s specific criteria. It can include fundamental and technical data, as well as order flow data for more advanced traders looking to ensure they can get easily in and out of a trade.
With the addition of other investment tools such as options, futures, commodities and foreign exchange, brokerage accounts offer a wide scope for today’s investors at a low price—and all for a few clicks. Expect the double-digit growth in the space to continue.
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