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Innovations in Financial Technology: Wisdom of the Crowd

Posted on Thursday, Mar 21st 2013

It is of particular interest to me when an established industry begins to innovate and move in new directions. Financial technology has been an active area of innovation all along, but the advent of social media and crowd sourcing has infused new life to the sector. Aside from crowdfunding, here at 1M/1M we are also tracking innovations in the crowd sourced trading sector.

A perfect example is TradeKing, an online-broker dealer founded in 2005. When we first met in 2011, chief information officer Dan Raju described the Charlotte, NC-based company as the first consumer trading platform to introduce social media to online brokerage. Sourcing from over 20,000 customers and over 250,000 individual investors, TradeKing provides users with personalized insights regarding successful trading experiences. TradeKing supplements these discussions with curated Web content. Customers can then make informed decisions for their portfolio based on real market data.

According to Dan, this different kind of financial platform is driven by “self-directed investors” who make informed decisions about their capital rather than casually shopping around. The strong emphasis placed on social media creates an active online community where investors provide feedback for one another as well as for the site. As a result, the TradeKing model is entirely user-driven.

In August 2012, 1M/1M further developed its relationship with TradeKing by partnering to launch the Financial Entrepreneur Pitch-fest competition. Designed to encourage continued growth in the financial sector, the competition drew submissions from various types of innovators. The winners selected were provided one year’s sponsored admission to the 1M/1M program to build their platforms using the TradeKing API.

Competition winners support a growing trend toward user-focused financial apps. The two mentioned here, OmniVest and TheTradeStreet, base their platforms on user-defined trading strategies and networking within the trading community, respectively.

OmniVest

Ed Downs first combined his engineering background with the financial sector in 1987 when he founded Nirvana Systems. The company was designed to automate the trading process for individual investors, money managers and brokers. Under Ed’s direction, Nirvana Systems split to include Omni Traders International in 1999. Its flagship product, OmniVest, is a fully automated investment system based around creating portfolios of strategies.

OmniVest enables users to implement multiple trading strategies, using historical performances to make informed decisions. The chosen strategies are then combined into a “super collection.” The system uses this portfolio to trade every day, automatically growing investor accounts while implementing counter-risk measures. And with brokerage industry revenues down 20 percent in the past year, Ed points out that OmniVest can leverage brokers’ existing customer bases to increase trade volumes.

TheTradeStreet

Co-founded in 2011 by Punit Gupta and his partner Krishnan, TheTradeStreet capitalizes on the power of community to create a social way to invest. After three years as an active trader, Punit recognized the importance of social networking in the trading community and set out to build an environment to foster these connections. He joined hands with Krishnan to create a platform for new and experienced traders to connect online.

The platform operates as a learning environment where traders can discuss ideas and novices can learn from experts in one convenient location. The crowd intelligence collected on the platform not only helps individual traders, but network activity has successfully predicted several major market events. In addition to seed funding from Punit and Krishnan, theTradeStreet is operated through revenues from the co-founders’ side project, CompareBroker.com.

Following a successful closed beta, TheTradeStreet launched this past January. Initial testing was done entirely with the user in mind, collecting feedback on desired features and value propositions. The site has hosted 10,000 trades to date and Punit reveals that plans for a number of premium features are in development for the coming months.

TheTradeStreet’s model of crowd-sourced trading aims to level the playing field for individual traders competing with research firms to predict market trends. Omnivest similarly caters to the user by managing portfolios according to personal preference. That both were chosen by TradeKing, an industry thought leader focused on the conversation around trading, shows a significant shift in the financial sector.

[This article was first published at http://www.xconomy.com/san-francisco/2013/02/21/innovations-in-financial-technology-wisdom-of-the-crowd/

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