
Online stock trading has taken off effortlessly. The speed, ease and availability of Web trading means Joe Public can buy and sell with the big boys. But are there hidden dangers lurking beneath your browser? Julian Goldsmith asks whether it's time for regulation
Published: 4 February 1999 15:50 GMT
The Internet has opened up world stock markets to the amateur broker. Millions of people are now buying and selling shares online.
But many of these inexperienced traders have had their fingers burnt - and the companies providing the online services have also learnt some harsh lessons, leading to calls for regulation in the industry.
US Securities and Exchange Commission chairman, Arthur Levitt, recently warned investors not to let the ease of Web trading delude them into making rash investments.
One major problem is that the Web makes it easy to 'day trade' - a process where an investor buys shares and then sells them again at a profit before they have to settle up at the end of the day's trading - the brokers' equivalent of free credit.
According to Justin Urquhart-Stuart, corporate planning director at Barclays Stockbrokers in the UK, new traders may not be experienced enough to ensure a profit at the end of the day and could end up owing a lot of money.
Urquhart-Stuart is calling for a tighter reign on inexperienced traders' use of Internet trading. "The Financial Services Authority will start putting out guidelines on the amount people can buy or sell in one trade over the Net," he said. "We are going to have to protect traders without stopping trade."
As far as the technology goes, Web trading is becoming a victim of its own success. Demand has increased so sharply that some brokers are unable to cope with it. Charles Schwab has been conducting a fire-fighting exercise to increase bandwidth in line with demand, and was forced to install 100 extra Web servers last year.
The trading giant was swamped by 55 million hits on one day in January - unfortunately the same day it was attempting an upgrade. Its system went down for 15 minutes - not a great deal of time in the grand scheme of things, but a lifetime if you had just placed an order for $15,000 worth of shares.
Restrictions are likely to be placed on traders to protect them - and the regulators may soon be looking at the operations of the brokers themselves.
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