The rise of the amateur home trader

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.”