Tesla is one of the hottest stocks at the moment, and it’s drawing a hoard of speculative day traders. A wild trading day yesterday saw the stock lose $55 billion of value from its intra-day peak. However, buyers have continued to buy the stock in after-hours trading.
Robintrack, a site that tracks the holdings of Robinhood users, shows that just shy of 50,000 Robinhood account holders purchased Tesla yesterday. As of this writing, over 457,000 Robinhood users now hold Tesla – representing a single-day increase of 12%.
Before the Bitcoin bubble burst in early 2018, everyone was looking for a share of the action. Stimulated through FOMO, or the worry of lacking something, speculative investors bought Bitcoin at breakty prices and scratched their heads when the price collapsed in a moment after reaching its peak.
It turns out that the inventory market may be heading for a destination.
In June, Alexander Kearns, a 20-year-old amateur trader, committed suicide after misinterpreting his account and believing he owed $730,165 while trading the inventory with the Robinhood app. This tragedy highlights the risks of speculating on complicated monetary products without proper training, and demands whether commercial programs want to be more regulated to protect consumers.
Stock trading apps have made it easier than ever to trade stock and derivatives like stock options.
The influx of non-commissioned cell inventory trading programs such as Robinhood, Webull and eToro has led classic stocks like Fidelity to offer free-priced inventory trading to compete.
Today, retail investors have to put money markets at their fingertips, and the mental barrier to negotiating prices is something that goes beyond. Add to that a national inventory market place that has only noticed that the S-P500 has negative annual returns twice over the subsequent decade, and this creates the best ghost that the inventory market site is a much safer and stronger investment than it can be.
Robinhood itself has attracted millions of consumers since its inception, and more than some of those consumers have opened their first brokerage account. Like some of its competitors, the app provides some users with the industry’s most complex value skills, such as inventory features and open margin accounts. A consumer with a margin account can borrow cash from the broker to buy securities without having to deposit their own cash. This allows investors to take advantage of their positions and potentially generate higher gains or losses.
These complex commercial products were once reserved for professional investors or monetary experts, but now they should be held to the general public.
There are thriving online communities touting the potential payoffs of placing risky bets on stocks.
Financial gurus like Warren Buffett often endorse passive investment strategies like the 3 Fund Portfolio, which relies on low-cost index funds. However, the allure of placing risky bets and potentially getting a massive payout is too much for many to ignore.
There is even a community on Reddit dedicated to trading that has over 1.3 million active users. Traders post results of successful trades, summaries of trades gone awry, or memes related to the many horror stories recounted by users. One of the trending posts from the recent rush to buy Tesla stock is of a trader that took a leveraged Tesla position and had a 1-day return of -52%.
The Reddit group also has a Discord server so that traders can discuss their trading strategies in real-time at all hours of the day and night.
Algorithmic trading houses are on the other side of your trades.
If you are able to pass the moonlight as an active inventory producer, one caveat is that trade is a zero-sum game. This means that some of all industrialists will have to lose for the other side to win. However, many of the quid pro quoS I would work with in the industry are not other people sitting in their pajamas at home. Professional investment firms are increasingly turning to computers and algorithms to analyze an infinite diversity of knowledge problems and neutralize complicated models.
High-frequency trading houses are also leveraging generation to position millions of bets to take advantage of conversion trends. A high-frequency trading company would possibly be in position and out of position while it is still busy entering numbers in its trading app to make a purchase.
This means that many amateur investors have discovered good fortune in trading, however, it can be difficult to distinguish between skill and luck in short periods of time.
With the ease of trading, it is ridiculously simple for the inventory market to be used to play as a casino. A word of caution is to play with cash that you are willing to lose.
Camilo Maldonado is Co-Founder & CEO of the TheFinanceTwins.com. He holds an M.B.A. from Harvard Business School and a B.S. in Finance from the Wharton School of the
Camilo Maldonado is co-founder and CEO of TheFinanceTwins.com. He has an M.B.A. from Harvard Business School and a B.S. Wharton School, University of Pennsylvania.