The rise of the amateur home trader
With the UK’s largest investment platform reporting a 40 per cent jump in net new business, can armchair traders learn from the professionals or do they face plunging themselves into the red?
At a time when interest rates on savings are at an all-time low, pension funds have been hit by coronavirus and many face reduced incomes due to the pandemic, retail trading from home has become a side hustle for those hoping to boost their finances.
A smartphone or computer, plus an online broker platform, is often all anyone needs to buy and sell everything from currencies to commodities to crypto.
Trading novices also have access to one-to-one online lessons from professional traders too, alongside YouTube videos and a plethora of guides or courses created by those with industry experience, and found with a simple internet search.
Charlie Burton, a money manager regulated by the Financial Conduct Authority, offers online training on his EzeeTrader website. He speculates that another reason there has been an uptick in popularity in the past 12 months is because of the lack of availability of sports betting during the first lockdown.
Citing the low barriers to entry, Burton says: “You can open up trading accounts with just a couple of hundred pounds and buy some bitcoin or euros or dollars.
“I remember back in the 1990s, filling in a load of forms to open up my very first brokerage account. You had to sign every single page and then send it off.”
Burton is quick to distinguish learning to trade from “buying an asset class and hoping it goes up” andl warns that “80 per cent will fail”.
He adds: “The reason most fail is this sort of ‘get rich quick’ type of mindset. The reality is, you’re going to have to accept being wrong probably 50 per cent of the time.”
Weighing up risk versus reward
Entering trading as an amateur is fraught with pitfalls, but this hasn’t hurt its new-found popularity.
According to an online post looking at the rise in armchair retail trading, by House of Commons Library researcher Ali Shalchi, the UK’s largest investment platform Hargreaves Lansdown reported a 40 per cent jump in net new business in the final six months of 2020 with an influx of younger people driving down the average age of its users.
One newbie is Andrew, 35, who says he has been exploring different platforms, while dabbling in a mix of stocks and bitcoin, because with interest rates so low he wanted other options to make the most of his cash.
He says: “One of the hardest things is getting used to the terminology, but you can find most things on Google. Trying to understand what is reliable information online is hard for a novice, so I looked for websites that I recognised and spent time to understand what I was getting into.
“You need to ask yourself if you can afford to lose that money. I’ve only invested what I can afford to lose. The websites and apps do warn you about this.”
Stuart Lane, chief executive of Trade Nation, warns that it’s tempting to believe trading is easy. “Understanding your appetite for risk and remaining unemotional when markets aren’t going your way can be hard,” he says. “That’s why we emphasise the importance of having a trading plan, and employing strict money and risk management. Profits, and losses, can accumulate quickly and being consistently profitable is hard. It requires discipline as well as a thorough understanding of technical analysis.”
Naeem Aslam, chief market analyst at AvaTrade, also proffers caution. “New traders need to ensure they are acquainted with the risks,” he says. “While there are opportunities to make a lot of money, there is also scope for loss. Making sure they are educated on the markets they are trading in, as well as the tools they are using, is key to success.”
Do the research first
Common issues the professionals highlight include overtrading or taking positions that are too big versus the money someone has available to risk.
Michael Kamerman, chief executive of Skilling, says: “While trading has now become more accessible, the ease of apps and online venues should not distract from understanding the decisions you make on them. Day trading isn’t a strategy people can jump into without doing their research first. When deciding where to trade, the current price of an instrument, like EUR/USD, gold, Tesla and so on, is only one part of the equation.
“When everyone talks about the hottest tech stocks, it’s easy to get swept up in the popularity. However, it isn’t the right product for everyone. For example, if you only have time to trade during the evening when stock markets are closed or don’t understand the products or services of the hottest new IPO, it’s wise to consider alternatives.”
The many pitfalls are perhaps why people are turning to professionals to teach them. Sarah-Jane McQueen, general manager of CoursesOnline, says demand for trading courses aimed at beginners jumped in February and March 2020, with internal data for the whole of last year showing the total number of learners interested in trading courses increased by approximately two thirds. So far in 2021, the number of learners is roughly a third greater than in 2019.
“The biggest red flag to be avoided when searching for a course is one which promises the world, such as ‘learn how to make millions in just a few hours’ or something similarly over the top,” she says. “These courses don’t take into account that what you learn isn’t suddenly going to make you a master of a skill overnight.”
It is for this reason, among many, why EzeeTrader’s Burton suggests it is time for the trading education industry to be regulated.
He concludes: “If you have to prove you have three years’ trading history of trading accounts you can actually show to some form of regulator, that would just cut out a load of these people. That would be a good thing.”