OUR INSIGHTS

The rise of the digital retail investor

Larger groups of risk averse traders are gathering on social media. They may not be trading large amounts individually, and they’re not armed with hugely accurate information, but together they’re able to wield significant clout. They buy and sell with frequency – and hold the potential to wreak havoc on share price volatility.

 

The buying and selling of cryptocurrencies has created an entire generation of social media-era pundits who are less risk averse, and their agility allows them to manage big swings in the value of their investments.

 

 

Settle in for the perfect storm…

 

 

The worldwide Covid-19 lockdown in 2020 and 2021 encouraged people with lots of time on their hands and spare money in their pockets to take up trading. US hedge fund Citadel saw global retail trade figures double in 2020, with as much as 20% of the average daily trade volume in the US being driven by these individuals alone. Meanwhile, closer to home, the JSE itself saw a surge of as much as 300% as younger investors flocked to the market in 2020 to take advantage of the bargains brought on by the pandemic.

 

Another factor is the gamification of trading apps and how easy (and fun) they’ve made buying and selling. One 25-year-old, self-proclaimed part-time trader – cited in this FT video – explains how he would have had no regrets had he lost money during the 2 000% rally in GameStop shares. “[that money] was not mine. I earned it by doing nothing – clicking a few screens. In total I probably spent four-hours to make $100 000,” he said.

 

Combine all of this with a global trend towards zero-commission apps and trading platforms offering the freedom of owning fractional shares (i.e., options trading), and we have the makings of a perfect storm.

 

 

 

More regulation on the horizon?

 

 

Rumy Khan, a Forbes contributor on Personal Finance, writes in one of her articles that “social media platforms have become virtual trading clubs for garnering trade ideas, swapping tips, and hyping stocks”. She goes on to say “In this frenzied environment, naïve participants are chasing rewards without appreciating the underlying risks, and some are getting caught on the wrong side of their bets, losing lots of money.

 

“Lack of training/education and understanding of underlying risks pushes many novice traders for cues from social media stock forum postings and digitally savvy finance influencers.”

 

Khan believes that, in time, social media platforms could be mandated to monitor and moderate posts and flagging stock tips as “unverified” or encouraging readers to “assess the risk”.

 

For more information about Aprio Digital’s service offering, contact Thomas McLachlan on thomas@aprio.co.za or the team at Aprio Digital on digital@aprio.co.za

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