Trading Stocks With a Flick of the Wrist
WHY YOU SHOULD CARE
Because the convenience of smartwatch trading could be hell on your portfolio.
By Ryan Derousseau
The mere thought of buying the Next Big Tech Stock from the convenience of a smartwatch would be enough to titillate some investors. But not Ed Martin. The high school teacher from Columbia, South Carolina, places up to 80 trades a month online but already finds it tough enough to access certain details on his smartphone — like graphs that highlight a stock’s “depth” (the difference between buy and sell orders). And sometimes he can’t immediately initiate a trade, which can cost him hundreds of dollars if a company’s value reverses during the lag. So the thought of trading on a 1.7-inch screen? Forget it. “It’s really easy to hit the wrong thing,” says Martin, 39.
Welcome to the future of trading stocks — without having to have tiny fingers and Superman’s eyesight. With a clear focus on enticing the typical investor to be a lot more active, which helps generate fees, the financial service industry is also making the practice of becoming a real, knowledgeable trader as easy as flicking a wrist. Indeed, big-name brokerage firms like Fidelity, E-Trade and Charles Schwab have rolled out Apple Watch apps that investors can use to read market headlines or get notified about specific stocks through a beep or vibration on the wrist. Meanwhile, in the U.K., IG Group has developed an app which customers can use to actually execute trades, with a voice-activated feature that lets people dictate their orders instead of tinkering with a tiny touch screen.
If it all sounds a little Dick Tracy, it’s because the stakes are so high: Altogether, regular so-called “retail investors” made, on average, $6 billion in trades each day last year, an amount that’s growing. But as with many things in tech, the early stages are far from pretty wonky. For now, for example, investors who feel an alert on their smartwatch still need to dash to their laptop, desktop or smartphone to place a trade based on any news they read. Annoying, right? Even so, studies have shown that people respond to desktop notifications within 30 seconds after receiving a message — behavior that could increase due to smartwatch alerts, since it “is on you all the time,” says David Albertazzi, a senior analyst with the research firm Aite Group.
There’s certainly an advantage gained by the early-adopting companies that appear tech-forward. “Whether or not it leads to trading, it does keep you engaged to your account,” says Daniel Wiegand, an analyst at Corporate Insight, a market research firm. Of course the hope is that investors will be more willing to pull the trading trigger — just as they have with mobile devices like smartphones and tablets. Since 2010, as these kinds of gadgets have proliferated and the economy has improved overall, E-Trade’s daily trading volume, on average, has jumped 12 percent, while TD Ameritrade’s has shot up 15 percent.
Financial advisers worry that constantly feeding market info to investors’ wrists will tempt them to try and time the market.
It’s difficult to imagine now, but when the iPhone first hit stores, companies had little idea on how to use the technology. Most applications resembled a scaled-down version of a website. No frills. No differentiation. But for financial companies — particularly banks — that all changed when they started to utilize the camera. By allowing customers to cash checks via their phone, mobile banking became commonplace.
Still, persuading investors to try trading on a smartwatch won’t be easy. After all, offerings through some brands — like Samsung, Pebble and Motorola — haven’t become a daily necessity for most investors. Some brokerage firms say this will change. “Apple has a history of making intuitive products,” says Kunal Vaed, senior vice president of digital transformation at E-Trade. “Our view is Apple Watch will drive the overall category of smart watches, as Apple did with smartphones in 2007.”
The loser in this trend, though, could be the consumer. That’s because the more trading someone does, research shows, the worse their results over the long term. For instance, the online portfolio design app SigFig found that investors who used its platform saw only a 4.5 percent median return in 2014, while the Standard &Poor’s 500 index rose 13 percent. Meanwhile, investors who traded from platforms that emphasized the popular buy-and-hold strategy, made famous by firms like Vanguard, outperformed people who were encouraged to trade — by nearly three times. (In defense, the senior vice president of Fidelity’s mobile channel, Velia Carboni, says, “As a firm, w e have a lot of research and content for due diligence. By no means is a watch a replacement for that.”)
Financial advisers worry that having too much information constantly feeding investors’ wrists and notifying their bodies about market movements will tempt them to try and time the market. “For investors, this thing is definitely a curse,” says Mark Matson, a financial adviser and founder of Matson Money in Mason, Ohio. In some ways, he notes, i nvesting should be kind of like a diet: “Eat less and move more,” he says. “But when that cheesecake comes around, it’s hard to follow those rules.”