How stocks turned into the game that an all-time high of Americans are participating in

New platforms and applications have emerged in tandem with a surge of technical developments to create a vibrant ecosystem that allows regular people to trade equities as easily as they would swipe through potential matches on Tinder.

How stocks turned into the game that an all-time high of Americans are participating in

In 2021, hordes of ordinary investors descended into the stock market, eager to buy in "meme stocks"—volatile companies with large social media followings but questionable financial standing. It seemed as if the desire to acquire stock in firms like GameStop Corp. and AMC Entertainment Holdings Inc. was an obsession that would eventually wear off. Driven by pre-vaccine ennui and pandemic stimulus checks, novice traders had little choice but to put their money in companies endorsed by internet trading luminaries such as Keith Gill and Ryan Cohen.

After three years, it is quite evident that we are in a new financial era. The meme-stock craze is here to stay, and betting with real money has never been simpler or more convenient. New platforms and applications have emerged in tandem with a surge of technical developments to establish a vibrant ecosystem that makes it possible for regular people to trade stocks with the same simplicity as swiping on Tinder.

In only a few minutes, young individuals can start a trading account. The average age at which members of Generation Z begin investing is 19, according a June poll conducted by Charles Schwab Corp. This contrasts with Gen X's 32 and baby boomers' 35. Schwab also discovered that almost three out of five Americans already own stock investments. According to statistics from the Federal Reserve, this percentage is the highest on record.

There are several methods for regular investors to participate in hitherto exotic and unreachable markets. This year saw the launch of exchange-traded funds that invest in Bitcoin, and the retail community has been enthralled with the surge in zero-day options, a modified form of the instrument that enables traders to place quick and dangerous wagers on fluctuations in price.

According to the American Gaming Association, Americans have spent over $220 billion on sports betting over the last five years, while the industry has boomed at the same time. Even average people may purchase fractional interests in artwork via a corporation called Masterworks LLC. According to William & Mary economics professor Peter Atwater, "trading has become interchangeable alongside the same kind of betting through the internet that we're seeing for games and in the sports world." "That fits into the zeitgeist of casinos."

Although investing seems simple and enjoyable during a bull market, things might go wrong for investors. Retail traders lost $350 billion in total when the S&P 500 plummeted 19% in 2022, according to Vanda Research. Retail portfolios on average saw a 30% decline.

The hazards are particularly obvious for the young. People's brains don't completely mature until they are in their mid-20s, and US Surgeon General Vivek Murthy has published a warning on the dangers of addiction associated with social media use for kids and teenagers. Social media and online brokers are made with engagement and interaction in mind. Additionally, there is user overlap: investors share recommendations on TikTok, X, and Reddit.

Only the associated article may be used with this picture for ninety days after publication.

Professor of finance at Emory University Clifton Green warns that if today's retail traders lose too much money they may never return to investing, losing out on long-term profits that might be safer obtained by diversifying their holdings and investing in index-tracking funds.

If you had just purchased an S&P 500 index fund five years ago and reinvested dividends, you would have doubled your money despite the hoopla around options and single-stock trading, which yielded an average yearly return of 15%. According to research, quick trades often result in excruciating losses, and both novice and experienced investors would be better served staying with a diversified portfolio over the long run.

Authorities worry that brokerages are gamifying trading in a manner that encourages customers to place more and larger bets. In order to resolve accusations made by the Massachusetts Secretary of State Securities Division that the company's game-like features exploited its often youthful and inexperienced clientele, Robinhood Markets Inc. agreed to pay a $7.5 million fine this year. (Robinhood denied any wrongdoing, claiming the accusations didn't represent current procedures.)

A feature that the corporation removed after the state found issue with it was the digital confetti that fell on the screen upon consumers completing their first stock transaction. These activities are also being investigated by the Consumer Financial Protection Bureau and the US Securities and Exchange Commission. Financial services and gambling have parallels, according to a new CFPB investigation.

33-year-old Julius Johnson, who works in retail in San Antonio and dabbles in trading, was interested in investing in 2020 after seeing a post on X about someone making money. His primary areas of interest include options on stocks like the Nasdaq-100 Index-tracking Invesco QQQ ETF, GameStop, and DraftKings Inc.

He almost gave up his pastime after losing $2,000 in two weeks during that first year. During his work breaks, Johnson would trade on his phone and sometimes smuggle himself into the restroom or sit in his vehicle to review his options bets. He claims, "Probably just the user interface and how easy it is to trade," is what makes it so addictive. Eventually, after seeing the S&P 500 rebound, he jumped back in.

Take a look at how purchasing stocks was done a few decades ago to get an idea of how stock trading has changed. Let's say you overheard your buddies discussing a potential $50 per share public corporation. You would normally have requested to purchase a round lot of 100 shares for $5,000 when you called your stockbroker. In that case, $100,000 would be needed to assemble a fairly diversified portfolio of 20 firms.

Subsequently, there were the costs, which may reach several hundred dollars. Some brokerages used the opportunity to raise their costs after fixed trading commissions were eliminated by the US Securities Acts Amendments of 1975. Conversely, some others created the discount brokerage industry. At the time, Charles Schwab's trading fees were a great deal at only $70.

These costs gradually dropped to an average $13 per transaction in 2005, then to $5 by 2019, and finally to the zero-fee period we are now living in, thanks to improved technology and more competition.

Brokers began allowing customers to buy fractional shares of stocks for as little as one dollar or even one penny in the early 2000s. Even though fractional shares were first offered in the 1990s, investing a little amount of money was often not worthwhile due to significant trading costs. Index fund purchases and holdings have become simpler for regular investors as a result of cost reductions.

Naturally, nothing is really free on Wall Street. These days, brokers are paid to forward buy and sell orders from their clients to automated trading companies like Virtu Financial Corp. and Citadel Securities LLC, who pay to handle the transactions. The SEC is worried that individual investors would wind up paying higher prices for their shares—essentially paying hidden commissions—despite the fact that this approach aids in market liquidity.

Nevertheless, a task that formerly took several days and included phone calls and documentation may now be completed quickly and without the need for an upfront commission. The costs of setting up investments would have eaten up half of your savings ten years ago, according to Yelena Larkin, an associate professor of finance at York University in Toronto.

Larkin teaches a required basic finance course for her university's pupils. According to her, almost everyone in it either has a trading account or some understanding of the stock market. They've been investing for their whole lives, so they're not even aware of trading expenses.

Self-directed trading required the use of a desktop or laptop computer even ten years ago. You may now make a few transactions on your brokerage account at Robinhood, Interactive Brokers, ETrade, or Coinbase after uploading content to X, Instagram, or viewing videos on TikTok.

The chief trading and derivatives strategist at Schwab, Joe Mazzola, asserts that "you have to offer your clients access to mobile." "Mobile is a big changer—when we compare engagement on mobile vs on platform, the rise is exponential.”

Ben Allen, a 49-year-old Atlantan who works in the music industry, has been trading stocks as a hobby for 15 years and has seen costs almost disappear. A few years ago, he got a Robinhood account primarily to avoid having to phone his broker in order to execute a deal.

Despite having a professionally managed retirement fund portfolio, Allen enjoys playing around with a few thousand dollars invested in firms like Apple Inc. and Nvidia Corp. "The brokerage industry was once opaque," he claims. "But now that everyone knows, it's as though the secret is out.