Investor Share Trading Apps: Are you investing or gambling?Sep 10, 2020
Investor Share Trading Apps
Are you investing or gambling?
Many of us will be glad to see the back of the craziness of 2020. The global pandemic of Covid-19 has ushered in a new era of social distancing, lockdowns, masks, curfews and restricted movements. It’s no wonder that the impact of this has caused Australian and international share markets to become incredibly volatile.
As you would expect, at WFS we consume a lot of financial news. If you do this too, you may have recently noticed those annoying ‘do-it-yourself’ trading ads popping up in your newsfeed. We have definitely become aware of the increase in ads promoting a variety of different trading platforms.
'Do-it-yourself' trading in the past
Traditionally, access to do-it-yourself market trading products was through buying books, or paying a fairly hefty subscription to some computer program that would let you in on the big secrets required to make your fortune:
Long-Term Secrets to Short-Term Trading by Larry R. Williams
But in recent times, like so many things, the business model has changed.
Now, it is all about the apps.
The increasing popularity of Trading Apps
As we already know, most social media and gaming apps are designed to be addictive. According to Facebook’s founding president, Sean Parker, speaking in BBC News, an app’s ease of use ‘exploits vulnerability in human psychology’, ‘changes relationships within society’ and ‘provides a social validation feedback loop’ through likes and comments. These work together to encourage the user to continue to focus their time and attention on interacting with the app. The new trading apps are no different.
Robinhood - the 'pioneer of commission free investing'
The app that has promoted itself as democratizing share trading is ironically named Robinhood. While it isn’t currently available in Australia, it has been rocking the boat in the US since 2013 with its commission free investment. Recent months have seen a substantial increase in new investors due to people being isolated, bored, or out of work due to Covid-19.
Targeted to millennials, and with a current usage in excess of 13 million investors, Robinhood gives users rewards each time they trade. There is a constantly updated ‘Leaderboard’ and traders ‘unlock levels’ when they progress within the app; ‘confetti’ is even released when the user places their first trade!
This gamifying of the process of trading and investing has had a significant effect on app users and the turbulent stock market of 2020. Robinhood’s colourful, exciting and easily accessible interface is designed to encourage young, inexperienced users to trade frequently. Some say they check Robinhood up to ten times per day – as often as they view their social media accounts.
While this use of technology can appear quite harmless, there have been many examples that just because you can do something, doesn’t mean you should. Trading with little or no investment education can make it very easy to get in over your head.
The perils of App usage in Share Trading
‘Options traders on Robinhood sometimes see a negative cash balance until the other half of their trades are executed… That does not mean, however, that this is a negative balance due or debt.’ - CNN
e-Toro - one of the world's biggest Online Trading Platforms
Available to Australians, eToro's big drawcard is its social trading feature that allows users to copy the actions taken by the platform's leading traders. Apparently free of commission, it’s simple to open a free stock investing account and start trading – but it is important to read the fine print as ‘only stocks traded on US stock exchanges are available to trade with no commission. Other stocks are offered as derivatives and bear commission.’
While many of us will choose never to invest through these types of platforms, their availability can impact ourselves and our exposure to certain shares.
Trading app effect on Hertz Shares
Robinhood, and other share trading apps tout their platform as ‘democratizing share trading’ by making the opportunity available to everyone. In reality, online trading was democratized in Australia with the creation of CommSec in 1997.
So, with all the sensory rewards of confetti, flashing lights, noises and levelling-up, when you trade shares by tapping the screen on your phone, you really have to ask the question - are you investing or gambling?
If you are curious about share trading and investment, please get in touch – it’s wise to do your homework and educate yourself before making your first move.