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Central Europe: Online Trading Off To Slow Start

The steady decline in trading volumes on Central European stock exchanges has led to a decrease in the fledgling practice of online trading. The development of online trading in the region was already hampered because of limited communications networks and the lower standard of living. But the rapid growth of online trading in the U.S. and elsewhere shows that it can become a significant part of retail stock trading. RFE/RL correspondent Nikola Krastev looks at online trading in the region's three leading economies: the Czech Republic, Poland, and Hungary.

New York, 10 August 2001 (RFE/RL) -- Investors in the United States and in many Western European countries have embraced the practice of online trading -- the buying and selling of company shares over the Internet.

Investors say they appreciate the convenience of trading stocks directly from their homes or offices, without having to telephone or visit a stockbroker. Online trading can also be cheaper. Companies offering online trading services frequently charge less per trade than traditional brokerages.

The U.S. Securities and Exchange Commission, which regulates stock trading there, says that online trading now accounts for about 25 percent of all U.S. retail stock trades -- even though the practice is only about five years old.

Yet, in spite of the popularity and advantages of online trading, the practice has been slow to take off in Central Europe. Financial experts in the Czech Republic, Hungary, and Poland say only a small percentage of "buy" and "sell" orders originate online and that overall trade volumes are falling.

Gergely Szuchovszky, an information specialist at the financial services company Internet Securities, says there are now six brokerages in Budapest that offer online trading and eight more are planning to offer such services. He says, however, that online trading accounts for just six percent of all stock trades and that figure is not likely to increase soon.

David Kennedy, marketing manager at Internet Securities in Warsaw, paints a bleaker picture of online trading in Poland. Kennedy tells RFE/RL that Poles perceive stock trading -- and particularly online stock trading -- as akin to gambling and see online trading as a type of Internet casino.

"A lot of the brokers' rooms are empty, for the most part, and people actually come and trade in person. In Poland, it's something like a betting show. There are also 'day trader' rooms where you actually go in -- and these places are empty [now]."

The term "day trader" refers to investors who buy and sell shares in a company very quickly -- sometimes during the same day -- to take advantage of small upward movements in price. The practice is potentially lucrative, but also very risky. U.S. newspapers have carried many stories of foolish individuals who gambled away their savings when the prices of stocks they were holding unexpectedly fell.

The Warsaw stock exchange had been seen as the real success story in Central Europe, with average trade volumes rising rapidly the past few years. That trend, though, reversed itself this year.

In fact, trading volumes on all three leading Central European exchanges, Warsaw, Budapest, and Prague, are falling.

Experts say part of the reason is the Central European bourses are following a worldwide trend away from stocks after the collapse of the U.S. Nasdaq market the past year. The Nasdaq exchange is dominated by companies in Internet and high-technology businesses, companies that have been hit hardest by the slowdown in the economy. The average stock price on the Nasdaq is less than half of what it was a little more than a year ago.

James Hammond, the senior vice president of Internet Securities, says that when American investors lost money on the Nasdaq, they lost their appetites for investing in places like Prague, Budapest, and Warsaw.

"All you have to do is look at the domestic market here in the U.S., where trading volumes are down, and it would appear to me that retail investors are having a tough time swallowing the risk in the U.S., much less the risk of investing in places that they know absolutely nothing about."

In spite of the unfavorable conditions, some brokerages are positioning themselves for an upswing. One company is Stockholm-based Brunswick Direct. The company started operations a year ago and has so far attracted around 3,000 customers.

According to information on the company's website and various media reports, Brunswick Direct provides an opportunity to its clients to trade in shares of 700 companies in 29 emerging markets, including the markets of Central Europe and Russia. The service is not cheap -- one trade costs a minimum of $50 -- but Brunswick Direct appears to be anticipating a time when online trading is conducted efficiently on a global scale.