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How to retain clients’ interest amid rise of the 'armchair trader'

How to retain clients’ interest amid rise of the 'armchair trader'
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The GameStop furore has undoubtedly been inspiring. The allure of ‘sticking it to the man’ and making a tidy profit at the same time is easy to understand.

If you had bought shares in the ailing US electronics retailer a year ago for $3.94 and sold when they peaked on January 27 at $347, you would have enjoyed a staggering return of 8,820 per cent.

That would have turned a £1,000 investment into around £88,200 (we will ignore costs for the purposes of this illustration).

In reality, probably only a handful of people in the world saw that level of return on their GameStop investment. More common are those who jumped in on the way up as the share price passed $50 (£36) and then $150.

And more common still are those who read the headlines and were enticed into buying at $347, only to then watch the value of their investment plunge. At the time of writing, shares are back down to $50.

Increase in armchair trading

Is the rise of the armchair trader something to be celebrated or cause for concern? For every penny in profit made by the hedge fund haters, you can guarantee another investor is nursing a hefty loss.

The months since the Covid-19 lockdown was first implemented have brought unprecedented growth in trading. The likes of IG, eToro and Hargreaves Lansdown have all reported increased user numbers and a surge in new accounts being opened.

For many sites, the greatest growth has come in younger traders, those aged 30 and under, who are dipping a toe into the investment game for the first time.

In the US, trading app Robinhood has been widely accredited with the rise in younger traders, with its promise of commission-free trading and access to tech superstar stocks such as Tesla and Apple.

Meanwhile, in the background you can almost hear the cry of the seasoned financial adviser: “Don’t do it! Run for the hills!” Because we all know the common Warren Buffett refrain: be fearful when others are greedy. With that adage in mind, now feels like the time to be afraid – very, very afraid.

Sensing an opportunity

Of course, we can not entirely blame GameStop for the rise of the armchair trader. Figures from Statista show that the real peak in day trading last year came at the height of the market volatility in March. As the extent of the coronavirus pandemic started to become clear and governments around the world put their populations into lockdown, traders sensed an opportunity.

During that month, an average of 2m trades a day were made through the London Stock Exchange, compared with 874,000 a day in March 2019.

The trend quickly subsided, though, and trading volumes were soon back to their usual levels. The GameStop furore may then just be the latest in a long line of brief spikes of interest in trading, amplified by the fact that many people currently have little else to do.