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Trading Apps: The Benefits and Hidden Risks

Trading used to seem so inaccessible. It appeared that it was only for those in the financial sector that had access to the markets and financial institutions. It’s very different now; some easily accessible online brokers bring the stock market to you. You can use trading platforms from your own home using your laptop…or any device! But is this a good thing?

What Makes Trading Apps So Popular?

Making trading platforms user friendly and available on mobile devices has opened up a whole new way of trading, and with it, a whole new type of investor. Making the global market easy to navigate and understand has meant that those who would never have dreamed that they could invest in stocks and shares can now do so from the palm of their hand. 

Not only has accessing the information become easier but so has reading the analytics and trends. Most trading platforms have simple graphs and charts to show historical market behaviour, helping people to make informed decisions on their investments.

Types of Trading Apps for Beginners

There are trading apps available for all levels of experience, which is where the danger begins to creep in. There are apps such as eToro that offer beginners trading discussions and education, don’t charge a commission, and offer ‘fractional shares’, making it attractive to people with a smaller budget. The Financial Conduct Authority regulates eToro, but it doesn’t have a banking license or public financial information. 

To add to the new ‘ease’ of trading, there are also stocks known as Penny Stocks. These low-cost stocks have a value of less than £1 and can appear very attractive to investors, particularly those just starting out and learning how to invest and trade stocks and shares. Penny Stocks can see significant growth due to their low price, but it works both ways and they can be very unpredictable. 

The rise of social trading

The days of the stock market being a secret club of ‘those in the know’ is slowly dying and nothing has ensured this more quickly than the rise of social media. Along with specialised trading websites for beginners and free-to-use trading apps, social media has made it accessible to just about anyone. Simplifying trading terminology and the creation of groups and communities to turn to for support and discussions has seen a soar in popularity among the masses. 

So, along with social media came the apps. The ability to partake in ‘armchair trading’ has made the conversation about stocks and shares a common one, particularly since the coronavirus lockdowns in 2020. Hargreaves Lansdown reported a 40% increase in net new business in the final months of 2020, and shares in Tesla increased 700% that year. It can only be assumed that a combination of social media conversations, ease of use, and lockdown boredom all contributed to this surge in new, younger investors.

Teen trading apps

To add to this new and exciting accessibility to the trading world, we have also seen the appearance of apps that allow the under 18s to invest in stocks using fake money. Trends are appearing on social media with young traders giving tips and sharing how they ‘made their millions’. 

Trading212 has an extensive knowledge base where traders can learn, read and watch videos about the various types of trading. The language is simplistic, the branding is bright and colourful, and their offering of Penny Shares makes the app seem very inviting…they also offer accounts to under 18s. These accounts are demo accounts that teach the youngsters the basics of trading, but it’s difficult not to worry that it could just be instilling gambling habits into youngsters. 

The Stocks & Forex Trading Game introduces the world of trading with cartoons and quizzes, while The London Stock Exchange offers a trading simulator that starts the teen off with a £10,000 portfolio and teaches them how to invest. There are contradicting opinions as to whether this is a gateway to gambling or a positive way to teach youngsters how to invest their money wisely from a young age.

The Dangers of Trading Apps

Of course, there are dangers to trading apps — anywhere that you invest your money has risks. But these risks are increased when you have little experience or knowledge in the field. You are essentially betting on the success and growth of a company. So is trading that different to gambling? 

Of course, you can say that trading has less risk because traders use knowledge of the industry, historical trends and strategies. Traditional gambling (such as card games and slots) is entirely based on guesswork and chance. Even trading has its risks though, markets have been known to unexpectedly crash with no warning at all, costing traders thousands in the process. 

Are trading apps properly regulated?

All trading apps should be monitored and regulated by the Financial Conduct Authority (FCA). This does not take away the risk involved in trading though and some apps may not be as they seem.

 You can use Football Index as an example. Football Index presented itself as a trading app, ‘traders’ could ‘invest’ in players they predicted would perform well and then sell shares for a profit. However, Football Index shocked its users by changing share prices dramatically, sometimes mid-play and has faced a huge backlash. They have removed the immediate ‘cash-out feature, and all users have money trapped within it with no way of knowing when or if they will be able to recoup their losses. Although they presented themselves as a trading app, they were a gambling app and NOT covered by the FCA. It is important to do your research before committing to anything.

Are trading apps a problem for people with debt issues?

Often, those in debt can feel desperate and the lure of making a lot of money quickly can be too tempting to pass up. Unfortunately, it is often the more inexperienced traders trying ‘earn a quick buck’ that end up losing the most money. If you are already in debt, putting your money somewhere other than into paying the debt back or living expenses will almost always end up with you being worse off. 

What to Do If You’ve Lost Money on a Trading App?  

There are lots of stories about people making their fortune through trading but there are also horror stories about people that have lost everything by reinvesting more money than they can afford to try to recoup previous losses. This is when it can become dangerous territory.

If your losses are small enough, you may be able to recover them through strict budgeting and tightening your belt on your spending. Take a look at our budgeting help and guidance within our Managing Debt page or download our handy ebook that contains a printable budget sheet to help you. 

If you have lost money through trading apps and have found yourself in a difficult position when it comes to repaying money that you owe, contact Debt Movement for free and impartial debt help and guidance. Our team will assess your financial situation and make recommendations based on your unique circumstances.

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