As the trading landscape continues to clutter with platforms boasting cheap and easy market entry, their straight-to-’live’ approach leaves retail traders set up to fail. Nick Hall, co-founder of Stocknet Institute, explains why we need to remember that trading requires serious practised skills, and the importance of giving traders of every level a safe, transparent virtual environment to hone them.
Retail trading has historically offered a way for anyone, anywhere, to get involved in the financial markets. There are new investing platforms launching every day that make it easier than ever for anyone with a smartphone and a few pounds to get started.
In fact, more than 20 million new traders and investors opened online trading accounts amid the COVID-19 pandemic, encouraged by work-from-home boredom, stimulus support, ultra-low interest rates, and the growing availability of digital trading solutions. Today, the global online trading platform market is projected to grow to an unprecedented 15.34 Billion USD by 2030.
However, a uniquely low barrier to entry and widespread appetite do not take away from the fact that trading is a serious skill and takes many hours to perfect. Honing skill, style, and expertise across asset classes and strategies takes practice and without it, the consequences can be severe.
As trading technology expands and improves, so too must the level of transparency around the issue of financial literacy. It is the responsibility of those offering trading experiences to help guide and educate traders of every level to healthy and fruitful market participation.
The best way to do this is by offering a virtual environment where traders of level skill can learn, grow, and even be encouraged by rewards before jumping into live markets.
Today’s market is no playground
Despite a cautious start to the year, retail trading hit an all-time high this summer, according to JP Morgan data. However, whether this translates to success – and continued success at that – remains to be seen.
There is a financial literacy gap among retail investors, stemming from a lack of fundamental understanding of the financial markets and trading concepts. Today’s turbulent economic environment and range of platforms eager to ride the retail trading wave are making it difficult, even for more experienced traders, to navigate the market.
Many jump straight in without fully understanding the nuances or basic skills needed to trade successfully and are equally unaware of the consequences this lack of foundational skill can bring.
For example, offering ‘live’ trading accounts is popular now, but it’s not the best way forward for a healthy experience let alone a longer-term relationship with trading. Those new to the game don’t have the opportunity to try their hand in a practice environment first and take real risk as a result.
Bridging the retail trader literacy gap
Trading solutions need to return to a focus on trust and transparency to truly live up to the unique level of financial inclusion that trading aims to achieve and support. Instead of jumping straight into a live market, it’s important that retail traders of all levels and disciplines develop their skills with lower risk in a safe, non-live environment.
Even the controversial ‘gamification’ of trading done properly – virtually – can be a useful gateway to support novice traders on their journey to becoming trained professionals. For example, it offers virtual challenges to work through skill games that give users a taste of different styles, strategies, and asset types without exposure to a live trading environment.
This is what will ultimately build them into confident and knowledgeable market participants, not just benefiting the individual investor but the trading ecosystem as a whole. The World Economic Forum and BNY Mellon 2022 Retail Investor Survey found that over three-quarters of current retail investors would invest more if they had more opportunities to learn about investing – that’s a chronically untapped and under-supported community.
It’s easy to get in over your head with trading, especially if you’re new to the game. As it becomes simpler to get involved in the market through new digital solutions and platforms, it is a crucial responsibility that financial technology firms offer not just innovation, but transparency and expertise.
We need to focus on offering solutions that support everyone from the most novice to the most experienced trader – and a virtual environment is a safe, educational way to get that started.
