With people looking for alternative ways to make money, especially with the impact of COVID on the financial system, people’s interest in the stock market has grown. There are a number of social trading and financial platforms to guide people who want to invest money in the stock markets. Today, even university students are interested in the stock market.
In line with this, social finance platforms such as StockGro, MyVoleo, Tradegyani have been designed to attract millennials and Generation Z customers to stock market investing education.
Platforms like Inventory Gro interact with customers in many mock periods and help them engage with specialists and neighbourhood members to enhance their buying and selling experience and investment.
«Opening a Demat account, KYC for investing in stocks or bonds can also be a cumbersome procedure. As a result, many people get confused and often fall by the wayside,» says Ajay Lakhotia, founding father of StockGro.
The platform simplifies this method for new customers by offering them digital money when they create an account, which they use to buy and sell in real time. Like gaming platforms, it also has writing boards where people can see who is getting the highest return on investment. It also brings people together to discuss funding concepts and trends, just like on social media.
«The definition of long-term financing has changed; people are moving from being passive traders to energetic traders and chasing the moment. Millennials are driving short-term investments, which are held from a few days to a month. Also, compared to middle-aged professionals, college students tend to research the market more continuously and devote many hours to it, so they are better able to time the market. About 30% of our clients are college and university students,» says Lakhotia.
Although StockGro predominantly targets millennials and Generation Z, there are several different platforms for traders of all age groups {and from all professional backgrounds}.
Advantages and disadvantages
There are some pros and cons to these platforms, mainly depending on the profile of the investor. «People don’t usually have an overall investment plan in any sense. Without a plan, investing haphazardly is the main drawback,» says Suresh Sadagopan, a registered fund advisor (RIA) with the Securities and Alliances Board of India (Sebi) and founding father of Ladder7 Monetary Advisories, a monetary planning agency.
«The options on many social trading and financial platforms are quite generic and also product-specific. You have to be transparent about one’s monetary objectives, such as when you want returns, what the dangers and rewards can be, and so forth. They should perceive why and where they should invest. These parameters vary greatly from person to person and the generic options of social buying and selling and financial platforms could not help in this matter,» Sadagopan adds.
When a person has other monetary commitments, such as the costs of raising a young child or caring for a dependent, he or she should be prudent before investing, he or she says.
«However, these platforms are a start for younger people who need to invest and have smaller monetary commitments. These platforms educate them financially and they can get more information about investments,» says Sadagopan.
In short, you have to be careful when it comes to investing in the stock markets.
Stock trading is booming among millennials, but are they rushing too fast?
At a time when savings rates have fallen to less than spectacular levels, more and more people are tempted to trade equities in order to take on more risk for higher returns.
In her research, Dr Angel Zhong, a senior lecturer in finance at RMIT University, found that in Australia alone, retail investors’ trading volume in equities increased by more than 60% during the lock-in period compared to the pre-COVID period.
This is backed up by new data from Commonwealth Bank’s CommSec equity trading platform, which shows that the number of its clients with no trading experience has more than doubled in the last year, from 8% before February to 18% in December. The majority of these new customers (83%) are under the age of 44 and are made up of millennials, Generation X and Generation Z consumers.
But are young people going into business for the right reasons and with enough preparation? Let’s take a look.
Why equity trading is booming
Zhong said there are a number of factors, in addition to record low interest rates, that are causing this surge in stock trading. Some young people saw it as a way to kill time when they were stuck at home. Others were driven by «FOMO» (fear of missing out) to join the trade after the global stock market crashed last March and share prices plummeted.
One of them is Diren, a 20-year-old university student from Sydney who decided to try his hand at stock trading last year. With a lot of time on his hands because of the pandemic, he invested $1,000 in September with the aim of increasing that pool of money to $10,000.
«I was trying to find a way to make money when I am at home. I looked into different things like dropshipping, affiliate marketing, day trading and investing. Buying shares seemed like the easiest of all the options I was researching and I kept getting ads for the investment platform eToro, so I decided to look into it,» he said.
Diren’s portfolio is now worth about $3,000, but he says the initial hurdle for him was the fear of losing money because he had no previous or professional trading experience.
«There have definitely been times along the way when I have lost money. The first few weeks, or even months, I was in the red and most of my positions were losing money, which was very demoralising,» he said.
«However, all the companies I invested in, I researched them thoroughly, trusted them and just had to hang in there and, in the end, they all went into the green and made big profits.
According to Diren, the key is patience and playing the long game.
«Warren Buffet, one of the world’s greatest traders, said: ‘The stock market is a device for transferring money from the impatient to the patient’, and I found that to be very true,» he said.
«There have been many times when I have seen stocks fall a lot, and I have been very keen to sell to cut my losses. But if I was patient and persevered through the fall, it almost always recovered and went higher than before.
«I think it’s very important to be prepared to lose some of your money as well, and to be comfortable with that.»
Online stock trading: What are my options?
The good news is that today it is much easier for retail or non-professional investors like Diren to enter and participate in the stock market. This is thanks to the rise of online stock trading platforms such as Superhero, eToro and SelfWealth. According to Dr Zhong, a big advantage of these platforms is that they are often low-cost. For example, SelfWealth (Classic), which won the Mozo Experts Choice Best Casual Trader Award 2020, charges a brokerage commission of only $9.50 per trade.
However, the downside of using these low-cost platforms is that you do not necessarily have access to in-depth stock analysis. However, some online options, such as CMC Markets and CommSec, offer live market data, analysis and detailed information to clients with more premium accounts, although you have to pay more for these features.
While the internet has made stock trading more accessible, Zhong says it has also given rise to a phenomenon known as «social trading». Here, retail investors exchange stock trading ideas and provide unmoderated investment advice on social media sites or discussion forums such as Reddit and Hotcopper.
A prime example was the recent frenzy around GameStop, when an army of amateur investors rallied on Reddit to buy shares in the struggling US video game retailer GameStop, sending its price skyrocketing. While some walked away with a fortune, others who got caught up in the social media hype ended up losing money.
«In Australia you have to be licensed to give financial advice. But [on social media] anyone can comment and give advice,» Zhong said. «If you are an average retail investor without any financial or investment background, it may be difficult to judge which comments are correct and which are biased.
«Social media trading»is sometimes advertised on online trading platforms as «copying», where a user may choose to copy someone else’s strategy. While this may seem like an easy path, Zhong said it is absolutely crucial to do your own research.
Tips for trading shares
What other tips should you consider before your first operation?
Here, Zhong offers some of them:
Don’t put all your eggs in one basket: A good way to protect your portfolio, says Zhong, is to avoid «putting all your money in one or two stocks». It is important to diversify, not only in the number of stocks, but also in the different sectors in which those stocks operate. For example, buying ten shares in ten different banks is not considered diversification.
Be realistic about wins: as anyone who frequents social media will probably tell you, most people prefer to share the best or most successful parts of their lives. The same concept applies to stock trading, and Zhong says research on financial behaviour shows that people tend to count only their gains and omit their losses. This can create a mentality that «it’s easy to make money because everyone says they’re making money», which can lead to unrealistic expectations and disappointment. Instead, be prepared for losses.
Research thoroughly: According to Zhong, it is important to research thoroughly and take everything you read with a grain of salt. «A newcomer to the stock market has to understand that some trading strategies are the exact opposite of others, because different analysts may have their own opinions,» he said. For example, one expert may recommend a «buy», but another may interpret the same signal as a good opportunity to sell. So rather than following one expert’s opinion, it may be wise to consider several recommendations.
Know who you’re investing in: Speaking of research, it’s also relevant to thoroughly investigate a company and its sector before buying. This may mean reading their financial reports and future plans, as well as keeping an eye on who they work with and whether they are launching new products. Some experienced investors may even think about a stock for several months before making a decision. The government website Moneysmart recommends starting with a sector you are familiar with, as this can give you a better chance of seeing whether the company’s position is strong or weak.
