What’s with the explosion of retail trading?

*This content is brought to you by Blackstone Futures

There can be no question that the number of people trading for themselves in the last 18 months has exploded! Brokers across the globe have seen record numbers of clients opening trading accounts. All hoping to exploit opportunities that the forex, CFD and equity markets have offered up. The advent of fractional ownership of shares has also made it so much more affordable to be involved in the financial markets. What are the underlying reasons for ordinary people looking to get involved?

Covid effect

Most people lucky enough to have a job have been working from home. They have not had a boss looking over their shoulder and checking in on what they are doing 9-5. They can have a trading platform open while doing their day job and potentially take advantage of opportunities in the markets.

The pandemic has been such a shock to the system that no one is necessarily better placed to take advantage than the next person. No fund manager could have modelled such an event and so everyone has been scrambling to be involved.

Those that did lose their job were suddenly looking for a new form of income or something to support them while they looked for the next opportunity.  The low barrier to entry made it a very attractive option where few may have been available to them at the time. All you need is a stable internet connection, a laptop or mobile phone and some cash to get you started.

Access to information

The average person has access to so much information these days that was once the preserve of the fund manager. Armed with this information, more people are confident enough to make a call on their financial future and not just leave it up to the boy’s club. Many of the fund managers have struggled to beat inflation, have still taken their fees and still have shiny new cars at the expense of their clients.

People want more control of where their money is invested and which types of companies they see as the growth stocks of the future. They have a bigger appetite for risk and are prepared to bet on the future unicorns like Tesla, Netflix and Amazon. Pity it is hard to think of a local unicorn, but EasyEquities looks to be the most likely and a huge beneficiary of the explosion of retail trading.

Gamification

A few months ago, a little know stock called Gamestop exploded onto the scenes. A retailer, with physical stores, was found to be the subject of a large short position in their stock. A wealthy hedge fund was hoping their shares would go to zero was caught in a short squeeze. Thousands of small investors were caught up in the fun on Reddit and proceeded to push up the price of the share. It moved from $10 to over $300 in a matter of days.

The activist investor and hundreds of thousands of others were suddenly involved in playing the stock market in a very different way. They were taking on the hedge funds of Wall Street and winning. Other shares like AMC were soon to follow and companies like Robinhood have been opening thousands of accounts every day.

Bulls**t Media

What I really meant was social media. Social media has had a huge influence on people’s perception of trading. It is mostly bulls**t as those posting all over Facebook, Instagram and Twitter of their trading prowess or 95% success rate or robot that guarantees great riches, are just influencers. They could not trade themselves out of a wet paper bag but are able to market to the fear and greed of their audience.

These influencers may have no more than a camera and a photoshop suite and can transport themselves to luxury cars, private planes and even yachts. They post about being self-made traders and for a small subscription you can have access to all their secrets. Really?? No one gives away all their intellectual property for $50 a month.

Brokers

All this hype has been good for the brokers as more and more clients have been drawn into discovering more about online trading and investing. Most brokers have seen a 2-3x increase in account opening and trading volumes. But has it been good for their clients?

“A significant number of people have been drawn into investing and trading that would have never contemplated it before. There are always lessons to be learned when starting out and some clients have made mistakes. A lot have also benefited, and the amount of education provided by platform providers is staggering. The pandemic has offered many people the opportunity to become more involved in their financial affairs and to develop a much deeper understanding of how the markets work. Long term, this must be good for both clients and providers,” said Nick Sproule, Managing Director of Blackstone Futures.

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