Why are Online Broker Firms Sleeping?
It still surprises me. Most online broker accounts are inactive and nobody is doing anything about it. Even though most of these accounts have a balance and/or open positions. In fact online broker generate 90% of their transaction revenues with just 10% of their accounts.
It seems like the business model of online broker firms has been so far: drive an aggressive marketing campaign to bring in bodies and then hope that some of them are active investors. Those people that turn out to be active investors get a lot of additional services and tools (most of these too complicated for me) to make them stay as long as possible and to not make them move to the competition. So everybody is fighting for this 10% of active accounts. Nobody cares about the other 90%.
I am one of those 90%. I am too busy to follow my portfolio each day, but I know what I should do: limit my losses, manage my risk, lock in my profits, sell my loosing investments (my wrong ideas) and try develop as long as possible my winning investments (sometimes I am right). This has nothing to do with market timing. This is intelligent buy-and-hold.
It would be easy to get me to trade: My online broker firm should monitor my position for me. I do not want a tool that I have to use/understand. I want my broker to just monitor my positions for me. Automatically.
So when I lost a certain amount, I get an email giving me an update on my position, telling me what the situation of that stock is right now and providing me a link to trade. Or when I made a nice profit that is at risk of being lost, I get an email telling me that now could be a good time to lock-in those profits - nobody went broke from doing that yet.
Turns out that online broker firms do not follow what their customers are doing. They do not upsell. They ignore the inactive accounts, even when it would be so easy to create a set of default alerts for each position one of their customers enters (hey, I can always opt-out of these alerts).
But I think this is changing. The margin/balance business of online broker firms is dead. Options volume (very profitable) is declining and everybody is bracing for a reduction in trade activity. Now it is the time to think about way to generate incremental revenue. I think we can help with Alerts4All.