By: James Bentley, Director, Financial Markets Online
With their flash cars and Rolex watches, Instagram’s self-appointed money gurus make online trading look easy.
Their pitch is beguiling. Just follow their ‘foolproof’ trading signals and you too could soon be living the millionaire lifestyle, drinking chilled fizz, reclining on a bed of money or roaring around the Med on your speedboat.
Sadly, many of those who have fallen for this contrepreneur’s pitch are now discovering to their cost that all that glisters is not gold.
The rise of the Instagram ‘get rich quick’ merchants comes against the backdrop of one of the pandemic’s more surprising legacies – a surge in the popularity of online trading and the emergence of a new generation of armchair investors. One trading platform saw its customer base grow from 50,000 to 500,000 in barely a year.
More interesting still was the profile of those first-time investors. Two thirds were under 35, while a fifth were 18-25. For decades, investing in individual stocks or trading forex was all too often the preserve of a wealthy elite.
But online trading has put the world’s financial markets within everyone’s reach. Meanwhile the evolution of Contracts for Difference (CFDs) – a cost-effective financial instrument based on the price movements of an asset – now allows would-be investors to gain market exposure for a more modest initial outlay.
Rapidly falling trading costs, coupled with improvements in both technology and trading infrastructure, have encouraged a far wider demographic, including women, to embrace online trading over the past few years.
The boom has been accompanied by an explosion in free online guides and not so free trader gurus peddling the promise of instant, easy riches.
Many of those who fell under their spell have since given up on investing feeling disillusioned, or even ripped off.
News that there are charlatans lurking on social media won’t come as a complete surprise to everyone. Show me the Instagram whizz kid with a Lamborghini parked outside his mansion, and I’ll show you someone with a hire car who has rented an Airbnb for a photoshoot.
In this era of Bitcoin, however, the promise of a quick buck has never burned more brightly and ‘get rich slowly and steadily’ never seemed so quaint.
Social media has given the oxygen of publicity to those trying to sell the dream of instant financial freedom to a growing swathe of society desperate to escape the humdrum of 9-5 work. Not everyone sees beyond the props, and too many have been blinded by the bling.
Exciting as their sales pitches are, you seldom hear these whizz kids refer to any of the tried and trusted financial metrics. Notions of ‘lasting value’, ‘managing risk’ and old-fashioned patience are usually absent from their lexicon.
Something else they usually neglect to mention is how little skin they have in the game themselves.
And therein lies the deceit, for many of these self-proclaimed experts will have little or no experience trading the markets themselves, and their wealth (assuming it exists all) will have come in large part from commissions paid by brokerages for each new punter they can serve up. As long as they keep churning through new sign ups, what does it matter if no one makes any money?
And yet, in a strange way, this Wild West behaviour is proving a boon to the trading sector’s genuine educators and trainers.
By highlighting just how easy it is for the uninitiated to accrue losses very quickly, the sharks’ cavalier approach unwittingly proves the value to beginners of getting some truly impartial training from experienced traders.
While today’s online trading platforms make the execution of trades effortless, they don’t make success easy.
Anyone who’s serious about trading forex – or the markets in general – will need a trading education if they are ever to be successful.
If you don’t learn early on how to manage risk, then you’re all but certain to learn, the hard way, a much tougher lesson; how quickly things can go wrong.
While technologies may change, the best strategies often remain the same, and those who trade with short-term horizons can expect to go on losing money.
More often than not, I find the successful trader will be the one who recognises the need to build from the ground up, and believes in the value of hard work.
Of course, trading is inherently exciting and the potential for big financial rewards can tempt inexperienced traders to take unnecessarily big risks. But losing discipline in pursuit of the big score is all too often the undoing of those who are starting out.
As Jack Bogle, founder of Vanguard liked to remind people, “Time is your friend, impulse is your enemy.” Or in other words, don’t get too greedy.
Sooner or later, those who get burned will either turn their back on investing or seek the advice of a reputable, expert trainer who has been there and done it themselves.
It’s hard to overstate the value of an experienced mentor. Who better to teach not just the theory, but also the practice, of investing than someone who has worked in the industry for years and knows it inside out?
Good trainers will show new traders how to spot not just the trading opportunities, but also the red flags to watch out for. And great trainers will be willing to share their knowledge, giving one-to-one encouragement and support as the newcomer starts their trading journey.
That’s why our training team has more than 50 years of trading experience between them, and we offer students a range of both online and in person courses on our London trading floor.
Like I always tell my students, you wouldn’t jump in the deep end of a swimming pool if you hadn’t taken swimming lessons.
So why would you behave any differently with your money?
James Bentley is Director of the London-based trading and forex academy Financial Markets Online