The explosion in popularity of so-called “meme stocks” in recent months has made one thing clear: social networks and recommendations have a huge impact on people’s trading decisions.
This year’s data from financial education app Finimize found that 94% of its users talk about investment decisions with friends before they pull the trigger.
It’s a trend that new brokers are now working hard to capitalize on, with many considering moving from a model where users can follow a group of “experts” to one where they interact more with other informal investors on the platform.
Max Rovaga, CEO of Finimize, says the real value for business startups lies in fostering “many-to-many” interactions between users. “By doing this, your product goes from single player mode to multiplayer mode – where real value can be created for retail investors,” he told Sifted.
Gatsby, a US trading app that received $10 million Series A in mid-March, is just one of those with this idea, hosting a “social network” where users can share trading tips.
This gives users a way to earn money based on their business. It plans to launch “Gatsby Circles” – which alert members when a transaction has been executed and allow them to follow through.
Earlier this year, New York-based Public.com raised $220 million with a valuation of $1.2 billion. The startup describes itself as a “social investing network” – with a heavy focus on social tools that help its users collaborate on investment strategies and educate themselves.
“The general community is about investing in companies, not just trading stocks. We believe investing is one of the most powerful influence functions for building financial literacy,” CEO Lev Abraham said in a press release at the time.
Europe behind the curve
It is clear that large investors are buying in the direction of social trading, but while new brokers in Europe have exploited some of these scams, no startup has made a very clear commitment to enhancing user interaction.
Fake things have been around for a while. It can be said that it is the model that eToro just announced SPAC Corporation – Merger He would give it a valuation of $10.4 billion – a major.
Nextmarkets, the Cologne-based neobroker net $30 million From investors, it has its own character in counterfeit trading. The startup partners with 22 “coaches” — most of them former fund managers — who collectively produce about 300 trading tips a month, according to CEO Manuel Hayden. These coaches share a trading tip, users receive an instant notification, they can click on it to read an investment thesis and, if they choose, go investing.
“It’s not social trading, it’s expert curated investment,” Hayden told Sifted, adding that these coaches are motivated to share tips, but not by volume — because that could present a conflict of interest.
Finimize’s Ruvaga says it may not be a bad thing that European new brokers aren’t bringing these social networks home and that perhaps they should always remain separate for ethical reasons.
“You will see some brokerages trying to move into this space, like in the US already, but we know from the Finimize community that trust is key and there has to be some kind of ‘Chinese wall’ between content and community versus transaction, because brokers will always be motivated to carry the customer to make the transactions.
Ethical dilemmas aside, if social tools are the next big thing in fintech investing, European fintech firms would be wise to lag behind — and there are signs that they are keen not to.
In December last year, London-based neobroker Trading212 published Blog post Entitled “Pancakes Become Social”. A user’s pie reflects the composition of his folder on the application.
In addition to enabling users to copy other users’ pies, the December update also added a host of social features – including public user profiles, avatars, comments, and the ability to save favorite pies to a library.
It might be an early sign of what’s to come.