Why are Small Investors Choosing Share Trading Apps?

In recent years we have witnessed more small investors choosing share trading apps to start their portfolios. Of course, saving for a rainy day, your retirement or any other reason is something we always encourage people to do, but you have to be confident that you are investing your money wisely; otherwise, all your hard-earned cash could quickly drain away. Moreover, with many young couples struggling to get onto the property ladder, they are looking at ways to gain excellent returns in a relatively short time-space, which can be dangerous.

The background

The rise of the internet has made it easier for us to buy and sell almost anything, which applies to shares. There are numerous trading apps, many of which have only begun in the last five years. Statistically, it has been discovered that the average age of investors is just 31 and 25% are women. In addition, the apps can offer lower trading costs as the apps receive discounts for bulk purchases, which is very much akin to buying in bulk at stores such as Makro.

The advantages

Of course, we would never dream of suggesting that these apps don’t have advantages, especially to savvy or knowledgeable investors. The simplicity of transactions, the aforementioned low costs and the fact that you can purchase fractions of shares and have leveraging capabilities mean that there is significant potential to make impressive gains. It is something that sounds almost too good to be accurate; well, perhaps it is!

The disadvantages

As you conduct your trades, you will receive next to no professional advice. Suppose you aren’t familiar with the markets. In that case, this can be very dangerous, especially if you seek advice from social media groups, many of whom will have a similar amount of knowledge as yourself. Poor advice will inevitably lead to losses, while individuals may be tempted to invest more than they can afford. Fortunately, some apps will put restrictions in place for your protection, but that isn’t always the case.

A prime example of a stock carried on a tide of false optimism based on a social media forum is GAMESTOP. As a few investors advocated the investment, others jumped on the bandwagon with insufficient knowledge and encouraged others to do the same. However, it proved to be a risky investment that had been performing well, in no small part to the social media forum. With paper returns looking great, no one considered the potential risk until it was too late.

These app types make it all too easy to purchase shares recklessly without a plan or strategy for diversification or to make sure it matches your risk tolerance. Investing should take time, consideration and planning, and you should do due diligence before making any purchase. Most investors will readily admit that they need professional advice, while others choose to go on their own route. Generally, those seeking advice have more profitable and diverse portfolios.

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