Millennials, through the help of a good education and internet forums, are more aware than ever about the importance of investing and compounded returns. The reality though is that investing takes a commitment of time and important decision making, two things that not everyone relishes. This appetite, matched with a rise in fintech infrastructure surrounding e-wallets, has meant that millennials are now inundated with ways to easily invest their money into markets.
Investing has essentially become simplified, which is good, because the heart of investing is simple. Online brokers are taking over from traditional methods of investing, and retail investors are on a rampant rise. Here are a few ways that this has happened, and why the trend will only continue to grow stronger.
Quantitative trading has been growing ever since Renaissance Technologies’ Medallion Fund has been, essentially, the most successful major fund the world has ever seen. The fund was created by, and manages exclusively, the money of the 300 workers there, most of which are computer scientists and mathematicians. This was one of the first funds that dumped discretionary investing strategy in favor of quantitative trades that were automated by an algorithm with a whole bunch of creative signals (like the weather!)
Since then, quantitative trading has taken off and become more accessible for everyday investors. Not only is building your own algorithm more simple now, but there are companies that are targeting college kids and ordinary parents to manage their money. Chinese Robo Advisors saw a surge of investors in 2016, and it seems COVID-19 has brought on a new wave within the West (perhaps due to a rise in disposable income).
There are now plenty of competing apps that take a matter of minutes to download and sign up to. A monthly direct debit to them is all it takes for them to invest it in several ETFs, and essentially try and track the market. They’re not as sophisticated as they sound, but it has meant that your average Joe is now involved in quantitative trading, something none of us saw coming 10 years ago. The reason for their popularity is essentially down to time and stress – they take care of the difficult decisions for you.
Integrated Trading Within Mobile Apps
Over the past decade, challenger banks are posing a huge threat to high street banks due to their sophistication and user friendliness- so much so that they’re even named simplii. Ultimately, millennials are more likely to take advantage of their high interest savings accounts if they’re right there on the app, as opposed to going in-branch.
It’s not just that trading apps are becoming increasingly accessible and targeting novices, but everyday money apps are also integrating such trading ability. For example, Revolut is an easy-to-use currency application. It was nothing more than a multi-currency e-wallet designed for expats, small businesses and holiday makers. But over the past couple of years, there has been cryptocurrency integration as well as buying stocks and commodities. Purchasing equities has never been easier, and this is partly why there’s been a significant rise in retail investors.
Even what would be considered authentic, powerful trading platforms with a lot of customization and low latency capabilities are becoming aimed more at novices. For the average retail trader looking to make a more sophisticated trading strategy, many platforms are allowing trading algorithms to be created via a drag-and-drop flow chart as opposed to using syntax in a traditional programming language.
If buying equities and currency wasn’t already easy enough, now there are social trading apps which help users make more ‘informed’ decisions. Or rather, allow them to copy someone who has a proven track record.
Apps such as eToro essentially have a ranking of the most successful traders, and you can view their activity on a feed. This can help inspire your own decisions and give users investment ideas. They even go a step further, where users can choose to copy another user’s trades entirely. This means that your trades will automatically execute the trades of the followed trader at the same time they execute the trades.
This is a unique form of passive yet active trading – an oxymoron perhaps, but nevertheless a reality. The ecosystem is interesting, because the followed traders get a commission out of every trade that is copied from them, which incentivizes becoming an influencer. This unique economy has traits of a pyramid scheme, but the reality is that successful and most followed traders are, well, successful. Transparency has meant that no one is left behind, and users can end up in the passenger seat to anyone who seems to be doing well.
As we can see in almost every factor in the simplification of investing, automaticity is at the heart of it. Millennials are often too busy to study market fundamentals and keep up to date with prices, yet are savvy enough to know they should be investing their savings. Paying the competitive commission on an automated system is the perfect answer, despite there being several forms of it to choose from.