Online trading can be dangerous

Posted by TEBI on August 21, 2023

Online trading can be dangerous



The advent of online trading means it has never been easier to buy and sell stocks — or indeed cryptocurrencies or anything else. But it’s very hard to online traders to outperform. In this video, GLEN ARNOLD, author of the Financial Times Guide to Investing, tells ROBIN POWELL that online trading is essentially speculation, and you’re much better off investing in funds instead.



Robin Powell: 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.

Glen Arnold: 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.


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