Online trading is dangerous

More and more people are trading online — including those with no previous experience. Why? Well, it’s primarily because technology has made it very easy to do. A video on the Bloomsbury Wealth YouTube Channel.

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Transcript: Robin Powell and Glen Arnold/ Professional investor & author

RP: More and more people are trading online — including those with no previous experience. Why? Well, it’s primarily because technology has made it very easy to do. Glen Arnold is a professional investor, author and former academic.

GA: In the old days, when I was young – you used to have to phone up a broker, the broker had to approve you, and then it was telephone dealing at best; or you had to pop down the road and actually go into the office to deal in some shares. These days, you can do it all online and it’s so quick and easy. So people with a bit of spare money are thinking, “well, I’ve heard of my friends making a fortune on some speculative idea – I’ll give that a go as well!”

RP: Another reason why people choose to trade is they’re tempted by so-called “free” trading. But just because you’re not paying broker’s fees, that doesn’t mean it’s free.

GA: Technically you’re not paying a broker’s fee, but the guy that you’re buying from – or the organisation that you’re buying through – is making billions every year. Now, they’re getting it from somewhere, right? And they actually get it from the market makers: those are the people that they buy and sell the shares from. So you’re getting a bad price, basically, for the share.

RP: But it’s not just shares that people are trading online. They’re also buying and selling complex and often very risky financial instruments.

GA: People dealing in things like derivatives: that scares me. You can lose all your money overnight. I have, in derivatives. Usually I hedge rather than speculate in derivatives – so I’ve got an underlying position, and then I hedge in derivatives so that, if one goes up, the other goes down; so I’m just flatlined so I’m fine. It’s a way of protecting the downside: that’s hedging. Speculating? I do not touch. You should not be touching those things.

RP: Cryptocurrencies like Bitcoin are also popular with amateur traders. Glen Arnold’s view is that cryptocurrencies are nothing short of a con.

GA: It’s the greater fool idea: people are investing in cryptocurrencies because they think they can pass it on to a greater fool at a higher price at a later date. There will come a time when people realise there’s nothing there. And they will all try to sell at once, and there will be people that will go bankrupt, it will have a knock-on effect on the economy; and that’s what’s happening with cryptocurrency. People are being conned.

RP: Of course, there are those who are more optimistic about the prospects for cryptocurrencies than Glen Arnold. But there’s no disputing the fact that crypto markets can be extremely volatile. It’s another example of how online trading is far more dangerous than the advertising makes it look.

Disclaimer — The information in this video does not constitute advice or a recommendation, and you should not make any investment decisions on the basis of it. If you do however require advice please do not hesitate to contact Bloomsbury Wealth.

 

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