More investors are meeting and sharing ideas in online trading communities. Should you base your portfolio moves on the wisdom of crowds?

For most equity investors, the wild market volatility of the past few weeks has been cause for gritted teeth and palpitating hearts. But a few who have become active in online trading communities took some solace in the fact that they at least had found a place where they can see how other investors are riding out the storm.

“Just the fact that I’m seeing people in there buying calls [an equity option that bets on rising prices] and common stock has definitely given me confidence that the individual is buying on the dip, which is basically what I do, and it’s always good to get some reassurance that other people are doing the same thing,” says Jim Collins, who opened an account at TradeKing.com in January.

Like many other parts of the Internet, online trading sites are more and more turning into collaborative experiences. Only one of the better-established discount online brokers, E*Trade Financial (ETFC), has made a foray into collaborative Web 2.0 capabilities with its acquisition of investment community Web site ClearStation in 1999, but a handful of newer brokers have made social networking a cornerstone of their platforms.

Getting Personal

Incorporating social media, or social networking, features such as message boards, blogs, live chat rooms, and podcasts works to the mutual advantage of both brokerages and their customers, says Brian O’Malley, a senior associate in the Menlo Park (Calif.) office of Battery Ventures Partners, a Boston venture capital firm that invests in emerging technology companies. Customers want guarantees that they’re getting credible information from trustworthy sources, and brokerages realize their business will suffer if they can’t ensure the legitimacy of the information and users on their Web sites.

The rise of trading sites centered on social media is seen by some as part of a backlash against the mass e-mails people used to get from unknown people promoting penny stocks and more often than not looking for a quick pop. But it also reflects growing demand for two-way flows of information.

“We see today’s consumers aren’t content to sit back and have their entertainment sent to them, or their news or, increasingly, to have financial advice sent to them,” says Donato Montanaro Jr., co-founder and chief executive of TradeKing, which launched in December, 2005. “They demand to be part of the conversation that impacts their lives, and we are empowering that conversation.” Investors in TradeKing include Battery Ventures Partners, and O’Malley sits on TradeKing’s board of directors.

Investors Who Network Trade More

TradeKing allows all of its members to have their own blogs through which they can share investment strategies, or even thoughts about the political landscape that may affect future market conditions. The site’s key innovation is its Certified Trades capability, which allows users to reveal what they have bought and sold and at what price.

Montanaro, who cut his teeth on trades as a licensed broker before being put in charge of all online trading at Quick & Reilly in the mid-1990s and founding SureTrade, is convinced the site’s social networking features encourage actual trading. Roughly 2,000 to 2,500, or just under 5%, of TradeKing account-holders are really active, either blogging or publishing their trades. “That 5% makes up just over 10% of the site’s revenue, so clearly investors who network

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