By Avery Keller
Coronavirus has led many people to pick up all sorts of new hobbies, but not many have shaken up the country as much as the growth of individual stock trading. For investors on Wall Street, this is a career not a hobby, but the growth of financial service apps such as Robinhood, E-Trade, and TD Ameritrade has allowed young people to simply trade and invest in their free time. NBC found that Robinhood alone generated over 3.1 million new users during the first quarter of 2020, which is an exponential growth for the company. The app has always been popular with young people, with NBC reporting the median age of users at 31, much lower than the typical age of a stockholder.
This growth of youth-led investing has spurred both concern and excitement. Many major media outlets and brokers on Wall Street have questioned if young people truly know what they are doing with investing. There are fears that they may take on too much risk or not fully understand their investments. Many of these concerns were voiced again after the suicide of Alexander Kearns, who had his balance on Robinhood displayed as a negative $730,000 after engaging in options trading, which allows a buyer to lock in a certain price for a stock and have the option to purchase it at a later time. He took his own life because he believed he was in an incredible amount of debt that he could never recover from; however it was a mistake on Robinhood’s side as he had not made the trade leading to that debt, but just had the option to. Since then, Robinhood publicly responded and worked to clarify option trading within the app and provide users with more customer service to address any questions or concerns about how to use the service.
Frankly, these concerns do have weight to them, and many young people don’t know what they’re doing with these apps, but many are also learning and educating themselves on investments. Not only do simple, small investments give these young people practice, it also encourages them to delve deeper into studies of financial literacy. By starting early, people can learn a lot over time about how the market can work for them and can be prepared for long term investments later in life. Additionally, the most important benefit from this growth is the idea of “democratizing the market.” Robinhood launched the era of free trades, allowing its users to make trades without any commission costs. Previously, all trades had additional costs that would encourage people to trade less, and put in larger amounts of money when they did. By eliminating this commission fee, Robinhood opened the door to people with less to invest. NPR reported that other companies soon followed this model, including TD Ameritrade, E-Trade, and Charles Schwab.
The growth of new traders couldn’t have come at a better time for the stock market. After coronavirus first hit, the economy was sent on a severe downward spiral. The numbers were bleak until, with the assistance of free trading apps, life was breathed back into the market. It seems as though individual stock trading could be a realistic future, and the necessity of brokers on Wall Street may be coming to an end. Young people have always been ready and willing to make their own decisions, and hopefully they’ll also be willing to learn how to work the new system they’ve created.
This is definitely not the end of the story for the changing market, but rather a new beginning no longer reliant on the old systems and infrastructure. As a society, we need to exercise caution but also encourage the growth of young and less wealthy investors. People will make mistakes, but the key is not to stop learning and improving. Instead, we can create a bright future and prevent tragedies like Kearns’s from happening again. Let’s welcome this new age of accessibility and democracy.
