Economy, Business And Markets

Online Trading Picking Up

Online Trading Picking UpOnline Trading Picking Up

Online trading is gaining in popularity in Iran.

The trend is likely to continue, as more traders flock to the stock market following the lifting of sanctions and exchanges and brokers offer better platforms.

“Today, 70% to 80% of trading on Tehran Stock Exchange is done online,” says Iran Mercantile Exchange’s chief executive, Hamed Soltaninejad.

Online trading allows individual investors and traders to buy and sell securities over an electronic network, typically with a brokerage firm. This type of trading and investing has become the norm for individual investors and traders since the late 1990s with many brokers offering services via a wide variety of online trading platforms.

The service started in the Iranian fiscal year starting March 21, 2010, as part of an overhaul of securities market regulations in Iran.

The regulatory reforms transformed Iran’s capital markets. Iran Fara Bourse over-the-counter market and the IME were created as a result, allowing for expansion of debt securities and derivatives, albeit slowly.

Online trading has been one of the outcomes of this overhaul.

Gold futures were introduced to IME, as Iran’s first proper venture into derivatives. Leverage offered on the contracts has always been capped bellow 10, to protect novel investors and curb volatility in the market.

“Now on IME’s gold coin futures floor, we have 20,000 transactions per day,” Soltaninejad told IRNA, adding that online trading takes the lion’s share as it features between 60% and 70% of the transactions.

Because institutional investors have shied away from speculation on gold futures, their trading has been dominated by individuals. This is not the case with stocks though. Institutions are the largest traders and shareholder as in the rest of the world.

So, while TSE is dominated by online trading these days, the picture is skewed, because institutional investors are currently staying away from trading. Their reluctance to trade is due to their aversion of realizing the losses their portfolios have sustained during the past two years. The improving economic horizon also promotes a long-term investment strategy. Meanwhile, the relatively incomprehensible market conditions for investment professionals and ongoing skepticism of the rally that started this January due to the removal of sanctions against Iran’s economy are also curbing large trades by institutional investors.

Moving forward, trading by institutional investors will pick up and diminish the dominance of online trading. But if global trends are anything to go by, the future of trading lies online.

Online trading has given anyone who has a computer enough money to open an account and a reasonably good financial history the ability to invest in the market. You don’t have to have a personal broker or a disposable fortune to do it.

In Iran, capital markets are expanding but trading volume and the market’s size are still small. This makes room for their manipulation, both by the government and high net-worth individuals.

Regulation and investor protection are in their infancy. Insider trading is rife and institutional investors sometimes make deals under the table to make a buck.

These will scare people away from the market. But once traders are protected and the markets become credible, online trading will truly dominate securities trading.