Disruptive innovation in financial markets – social trading from eToro
I recently spoke to a financial services company about digital disruption in the banking sector. I was able to speak with some confidence about Zopa that is a would be disruptor for both savings and borrowing as I signed up for them in the early days of their business. Recently I’ve signed up for eToro to try what could be a major disruptor in personal investments.
eToro’s digital proposition is a trading platform (of which there are plenty) that has been combined with a social network. Rather than simply following what another investor on the platform has to say, one can copy their trades. When I showed the platform to a friend, he commented that it was like have your own hedge-fund. You get to pick your own traders, assign them some of your investment and then leave them to it. If they do well you can assign them more funds to invest with.
The challenge faced is then picking investors whom you will copy to do your bidding. As would be expected of a digital platform there are a variety of charts and data available to make your selection but there are no guarantees of performance.
What makes this interesting for me as a digital consultant is the alignment eToro has with a set of five year trends I see on the horizon:
- Trend 1: Globally social – eToro makes it possible to copy and follow traders from across the globe. It comes with translation tools built into the interface allowing you to follow and join in conversations about market movements.
- Trend 2: Hyper connected – it’s possible to access most features of the platform through the accompanying mobile apps. The app also sends push notifications of messages and big market events to keep you updated on the move.
- Trend 3: Quantified life – your performance as a trader is open and available as is the performance of other traders. There’s no hiding behind fancy marketing or shiny investor prospectuses, the performance data speaks for itself.
The challenge ultimately is whether this is a disruptive innovation in its truest sense. To an extent eToro is a new market innovation. Technology has been well applied to create a blue ocean of social trading.
It can be argued that with low finance entry requirements that eToro is also a low-end disruptive innovation allowing those without the capital requirements of big fund managers. Similarly the product suits the needs of those who wish to trade leverage derivatives but don’t have the time to study charts or review market data.
Of course none of this should be considered investment advice. This blog isn’t for those looking for financial advice. However with a $100 free trading credit available, it was worth a try to see how the product works.