Everyone is Net Trading
By Alpesh B Patel
(November 2000)

Perhaps it is because I placed my first trade at the age of 12, to try to earn enough money to avoid a paper round, or perhaps because I could safely be described as an internet geek (freek could be equally applicable) that I am so fanatical about online trading.

It is this fanaticism that makes me wonder why even more people do not want to trade online. Perhaps I can explode some concerns they and even those who do trade online may have.

Europeans are net trading
For those worried that such an activity may be a little risky for its 'frontier-type' nature, you are definitely not going to one of a few online traders trying out untested technology. According to IDC, there were 6.4 million online broker accounts in the US alone at the end of 1998 and there will be 24.7 million by the end of 2002.

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In Europe, we like to follow the American lead, and so here too online trading is going to have an exponential increase. According to JP Morgan, 2 years ago fewer than 100,000 people were connecting to an online broker. Now there are 900,000 and by 2002 there will be some 8 million people trading online in Europe. The message must be - there is going to be a mad rush, join in or be left out.

There is going to be a mad rush, join in or be left out.

Online Trading Accounts in Europe

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I don't do that kind of thing
Of course online trading is not for everyone. But a common misconception is that you have to trade short-term to justify opening an online account. Wrong! Even if you only buy shares once a year, you could save in commission charges.

Even if you have never bought shares before, it does not exclude you from opening an online trading account. Most Europeans, unlike their Yankee cousins across the puddle, have traditionally invested in cash through pensions, banks and building societies. According to Morgan, only 25% of Britons own shares directly. If you think that is bad, only 4% of Austrians do.

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However, it appears that internet trading is breeding converts to share ownership. For instance, only 7% of Germans own shares, yet it is one of the most active online share trading markets, with some 400,000 online accounts. By 2002 that is predicted to reach 3 million online trades, more than any other European country. In Britain will come second to Germany, and it's not even soccer. It seems online trading is creating a demand for share ownership, rather than shifting it from offline to online accounts.

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Tax across borders
I get the impression some people do not trade online because they are unsure of their tax position. Others think that since it is an internet trade, maybe there are no tax implications.

Your tax situation is the same whether you trade online or offline. So if you pay capital gains tax, as most share investors would, on your offline trades you will also on your online ones. Because of double tax treaties you would not pay tax in both the country of the stock (eg. US) and your own country if different. More about tax in a future column.

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Don't have to be a big trader
You need not be put off from opening an online account by the false believe you should shift your entire holdings to your online account. In the US, according to one recent survey most people trade online with less than $10,000 in their accounts. In the UK for example, the Association of Private Client Investment Managers and Stockbrokers found that the average online trade was for £4,730. So, there is nothing stopping you testing the online brokerage waters with a small amount of capital.

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What Next?
There is little problem finding a good list of online brokers - check out www.uk.gomez.com; again more about choosing an e-broker in a future column.

Alpesh B Patel is the author of Net Trading: Get online with the new trading strategies; Trading Online: A step by step guide to cyberprofits. The Mind of a Trader: Lessons in trading strategies from the world's leading traders.