Tesla is one of the inventors of the moment, and draws a treasure trove of speculative traders. Yesterday, on a complicated trading day, the inventory lost $55 billion in price from its intraday high. However, buyers continued to purchase inventories after hours.
Robintrack, which tracks the assets of Robinhood users, shows that just under 50,000 Robinhood account holders bought Tesla yesterday. At the time of writing, more than 457,000 Robinhood users now own Tesla, a 12% increase in one day.
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 programs have reached industry inventories and derivatives, such as inventory options.
The influx of commission-free stock trading mobile apps like Robinhood, Webull, and eToro has prompted traditional brokerages like Fidelity to offer no-fee stock trades to compete.
Today, retail investors have access to the financial markets at their fingertips, and the psychological barrier of trading fees are a thing of the past. Add in a domestic stock market that has only seen the S&P500 have negative annual returns twice over the past decade, and it creates the perfect illusion of the stock market being a much safer and stable investment than it might be.
Robinhood itself has attracted millions of customers since being founded, and more than half of those customers opened their first brokerage account. Like some of its competitors, the app gives select users the ability to trade more complicated securities like stock options and open margin accounts. A customer with a margin account can borrow cash from the broker to purchase securities without having to put their own money down. This allows investors to leverage their positions and potentially generate outsized returns or losses.
These advanced trading products used to be reserved for professional investors or financial experts but are now available to the masses.
There are thriving online communities touting the potential payoffs of placing risky bets on stocks.
Financial gurus like Warren Buffett approve passive investment methods such as the 3 Fund Portfolio, which is based on cheap index funds. However, the appeal of placing dicy bets and getting a big payout is too much for many to ignore.
There is even a Network on Reddit committed to trading that has more than 1.3 million active users. Traders post successful transaction results, transaction summaries that went wrong, or memes similar to the many horror stories shared by users. One of the trend messages from Tesla’s recent inventory increase considers an operator who took a Tesla position with leverage and received a 1-day retracement of -52%.
The Reddit Group also has a Discord server so investors can talk about their trading methods in real time at any time of the day and night.
Algorithmic trading houses are in the other of their shops.
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 isn’t to say that many amateur investors haven’t found success trading, but it can be tough to distinguish between skill and luck over short periods.
With the ease of trading, it is ridiculously easy for the stock market to be used to gamble like a casino. One word of caution is to only gamble with money you’re willing to lose.
Camilo Maldonado is co-founder and CEO of TheFinanceTwins.com. He has an M.B.A. from Harvard Business School and a B.S. in finance at 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.