Millennials stuck at home during the coronavirus pandemic have turned to the sharemarket in the hopes of earning money, spurred on by the gamification of brokerage apps. But is this new engagement in day trading a sign of a switched-on generation, or a recipe for disaster?
If you believe money market observers like MoneyMorning, the market gyrations of recent times are all the fault of millennial traders. Most market pundits treat this new generation of traders with disdain.
Robinhood, the US-based trading app that offers zero-commission trades and a simple, videogame-style interface, had 3 million new accounts opened in the first quarter of this year, around half of which were first-time investors.
Closer to home, Aussie trading platform Stake, which lets Australians trade the US markets, saw a similar wave of new customers, with a 129 per cent increase in the first half of this year over the previous six months. Trading volumes also increased by 167 per cent, an indication of the number of people who are trying to take advantage of the volatility of the market in a COVID world.
But it’s not just the desire to make a quick buck that is seeing more new traders enter the market. Online and app-based brokerage platforms, including CommSec, IG, SelfWealth make trading easy and fun, in a way that appeals to millennials, by offering free or low-cost trades through game-like interfaces.
SelfWealth, for example, lets users follow other SelfWealth investors to see their portfolio, the trades they’re making and their gains and losses. Gone are the days of checking stock prices in the paper and calling a broker with your order – today’s trading is instant.
This increased feeling of accessibility is enhanced by increased visibility on social media. Stake, in particular, has organically spawned Facebook groups of enamoured users, and Reddit subreddits Ausstocks and Ausfinance, where internet users meet to discuss all things sharemarket and personal finance, have dozens of new threads per day from traders of all levels seeking advice, hypothesising about shares more experienced traders sharing their wins.
But for every big win by a new day trader, there are countless losses of varying magnitudes.
The recent tragic case of Alexander Kearns, 20, who killed himself when he saw his Robinhood account with a negative balance of more than US$700,000, is the worst kind of example.
According to investigators, he didn’t really understand the system – and didn’t owe the money either. When trading, one side of the deal (the purchase) can show before the other side – the value of the sale.
While trading is now much cheaper than it was in days gone by, and there are several zero-commission brokerage apps now, trading is not free. Stake, for example, offers free trades but charges an FX fee of US 70c per AU$100 (at a minimum of $2) when you move money in or out of your Stake account.
So is this a passing phase – or has something real change in the world of stock trading?
Says MorningMoney: “A global pandemic has thrown the world’s economy into a terrifying tailspin. The stock market’s gyrations, which often seem wholly disconnected from the actual economy, are more unpredictable than ever — and no less an investment wizard than Warren Buffet says his fund remains on the sidelines because “we don’t see anything that attractive” to buy.
Yet somehow an app designed to encourage inexperienced young Main Streeters to play the market, and that has been dogged by reliability issues, is a smash hit, bolstered by the smartest Silicon Valley investors.”
And money channels are also in shock.