A friend of mine approached me very excited the other day and said, ‘check out my stock trading app’.
She’s bought units of a much larger stock portfolio run by, I suspect, a large funds management firm.
It’s been an incredibly straightforward process for her: she downloaded the app, handed over her bank account details and voila, the portfolio of stocks appears on her screen and she can monitor the daily rises and falls in the unit price.
I have to admit it, I’ve seen this app and the simplicity and excitement of it makes it very alluring.
But, oooh, the dangers…
Let’s first though look at why these apps are taking off in popularity.
Go you good thing
Before COVID came along it was tricky to land ongoing, secure employment.
During COVID folks’ jobs were being made redundant.
After COVID it’s still tricky to land full-time work. However, people have been receiving government handouts and often saving or investing that money.
The handouts haven’t always been in the form of wage subsidies either. In some cases people have used early access to their superannuation to kick off a share market investing strategy.
The point being, after being locked away at home, bored, having extra cash lying around and worrying about the future, folks have decided to take advantage of ‘easy’ access to the share market.
The share market itself has risen to prominence too because of its recent record run.
Wall Street continues to push record highs.
The advent of the trading app
One trading app in particular rose to great prominence earlier this year when novice investors jumped on the GameStop bandwagon.
Those investors used the Robinhood app and the #Wallstreetbets discussion forum on the reddit platform to talk about, and drive up, the price of GameStop.
It was a moment in time when everyone saw how easy it is to sign up to a digital platform and trade shares on a whim.
I’m not going to argue it’s not easy. It is easy. Anyone can see that.
But it’s also easy to get in a car and drive fast, you just slam your foot on the accelerator and go.
What happens though when you approach a sharp corner or have to slow down quickly? You need skills in pulling that off.
The problem with trading apps is that it gives novice traders access to the speed of trading once reserved for seasoned professionals.
Those seasoned professionals spend all day looking at screens with real-time price information. They also have the benefit of education, years of experience and natural skill in trading the markets.
You’re up against these guys when you’re trading.
Another point to make is that these trading platforms are addictive.
You think you can just make a trade and let it be. But you can’t.
My friend looks at the app on her phone quite regularly and she gets quite an emotional ride from it.
That’s fun, but it’s also very dangerous.
But if you can’t help yourself, you at least need some strategies.
One obvious strategy is to embed stop-loss orders into your trading.
That is, have a price level at which you automatically sell out. This will avoid you watching a stock or portfolio unit price fall down and down on the hope that it will eventually move up again.
The other rule of thumb is never invest an amount of money that you’re not prepared to lose.
No easy gains
Investing is hard.
Unless you’re a professional, the best strategy is to build up an investment portfolio gradually, over time, and eventually live off the dividend income it generates.
Alternatively, if you’re young, you could throw a sizeable amount at the market in high growth stocks for a finite period of time, say two years, in the hopes the capital gain may contribute towards a specific purchase like a property or a car.
Stock markets rise in value over the longer term, so there’s money to be made. However, over the short run gains are often just as probable as losses. You don’t want to become addicted to the excitement of guessing which way it’ll go.
Most lose in this game.
Disclaimer: Opinions expressed in this article are general nature. This article has been prepared without taking into consideration any investor's financial situations, objectives or needs.