Explaining the rise of retail trading

Explaining the rise of retail trading

Retail trading is growing in popularity all the time. But it’s important to properly understand the market before diving in as a novice trader. That’s why I’ve set up G7FX – my aim is to provide the same standard of training that you’d get from the biggest institutions in the sector. 

In the meantime, for anyone interested in becoming an individual trader, the best way to start is to understand why it has become so popular recently and the platforms involved. 

Why has retail trading grown in popularity over the last year? 

Since the COVID-19 pandemic hit the world, there has been a significant surge in people taking advantage of retail trading via online platforms. These platforms allow anyone to become involved with trading and investing money using apps that effectively work as online brokers. 

Retail trading platforms have sprung up as options for non-professional traders to invest their money. There are platforms easily accessible across different markets, including the stock market, foreign exchange market (Forex) and cryptocurrency assets such as Bitcoin.

Currently, the biggest investment platform in the UK is Hargreaves London. And due to the pandemic, they reported an increase of 40% in new business in the first half of 2020. Furthermore, the age of retail traders using these platforms has dropped too. This is a significant development, as it shows the rise in much younger investors. Data shows that in 2012 the average age of an online investor using these platforms was 54 and now it’s 47. Of course, that’s an average and there are plenty of much younger users too. 

Proving it’s not just restricted to the biggest platform, another platform called Trading 212 has reported a huge increase in new users. Trading 212 is, according to its own advertising, the most popular trading and investment app in the UK based on number of downloads. And in February this year, the platform announced that it was forced to pause on opening new accounts due to the massive demand from eager investors. 

Why COVID-19 has boosted interest in retail trading using online platforms

While retail trading was already growing in popularity before the pandemic, there’s no doubt that the events of the last year or so have impacted numbers. Reasons for this include: 

 

• Some people have had access to more disposable income during the pandemic due to a lack of spending on entertainment, socialising and holidays. 

• Millions have been bored in lockdown, at least at some points and were looking for new ways to make money online, or just something new and exciting to get involved with. 

• There have been very low interest rates in the UK meaning there’s no incentive or reward for saving using traditional means. 

• Financial markets have been more volatile and uncertain during the pandemic, which means there have been all of these opportunities for big gains. 

We can see this last point in examples like Tesla, where shares in the EV manufacturer shot up by more than 700% in 2020. The same can be seen over in the cryptocurrency market, with Bitcoin hitting another record high in February 2021 when it peaked at more than $50,000 per token. 

Pros and cons of retail trading for new investors 

So, is this good or bad? For anyone who wants to become a trader it’s definitely good news. More people trading means more wealth to share and much more of a chance of it going to the ordinary person rather than to professional funds and investors. 

Retail traders make a strong argument that their involvement in and influence of the stock market is a positive thing. A notorious example of this hit the headlines in January when a large number of small investors got together on Reddit. They worked together to buy a huge number of shares in struggling names, including video game chain GameStop and floundering tech company Blackberry. 

This mass buy-up of stocks obviously sent their share prices up sharply, which led to professional investors losing out as they’d assumed these companies were going nowhere. Widely seen as a kind of democratisation of trading by the small investors involved, it sparked furious headlines from established funds and investors. However, I believe that it’s true that more influence from small traders will increase the fairness of the market in general. 

High risks mean high rewards for educated traders

However, there are high risks facing retail traders. The most important thing to grasp is the sheer volatility of the markets, whether we’re talking about the stock market or crypto markets. Prices can and do crash and it’s possible to lose thousands in literally minutes. 

It’s also important to understand that professional investors mostly make strategic decisions on behalf of other ordinary people. So, should retail investors plough their savings into any of the volatile asset markets with no strategy, then disruption can be caused that affects everyone. There’s also a school of thought that investment decisions should be made in a specific way. Buying into shares for either a fully emotional reason, on a whim, or as part of an organised group from a social media platform can be risky. If the business is effectively being artificially inflated in value, then it could totally crash. 

The UK Government believes that investing in cryptocurrency assets is similarly very risky, leading to the Financial Conduct Authority (FCA) issuing a warning to potential investors in the crypto space that they should be “prepared to lose all their money.” However, as long as you properly research the market and learn how to invest in it, you can make big returns. And that’s what it’s all about. 

In my opinion, traditional retail educators and brokers in this space have one motivation, and that is to make money from those keen to learn. Whether they provide any real value in return is debatable. This is why you might hear of people taking the wrong kind of retail trading education courses and getting nowhere. G7FX is based on the training I’ve undergone at some of the biggest and best institutions there are. 

Making a living and trading profitably is hard work. But people tend to give up too quickly, either spooked by the volatility or because they don’t understand the long-term possibilities. The rewards for people who take the right approach and benefit from high level training can change their lives through retail trading.