How to meet the needs of a new generation of traders and investors
Author: Marios Chailis, Marketing Director, Libertex Group
July 14, 2021
The average trader or investor looks very different today compared to just 10 or 15 years ago. The stereotype of the Ivy League or an Oxbridge educated man that was so ubiquitous in the days before the great financial crisis of 2008 has been completely abolished.
Perhaps the main driver of this change has been the internet and, more specifically, online brokerage firms like Libertex. In the past, you would have needed social connections and a significant amount of money to invest in a fund or buy individual stocks. Now all you have to do is create an account and deposit a nominal sum, and you are good to go.
Having said that, it is evident that the majority of new traders and investors are from younger demographics. The average age of investors has fallen from 10% to 15% globally, and this trend is expected to continue. Saxo Markets recently published a report showing that the average age of its clients has dropped by five years for men and four years for women, just between 2020 and 2021. Given the ease of access to information from quality and the enormous choice on the market today, not to mention the pitiful low savings rates on offer, it makes perfect sense.
We are also seeing more women investors and traders. When the pandemic hit, there was a huge influx of new registered trading accounts. U.S. broker Fidelity noted a seven percent increase in the number of accounts opened by men, compared to nine percent created by women. He also found that women tend to outperform men. Goldman Sachs found that this also applies to professional fund management, with 43% of mutual funds managed by women outperforming their benchmark in 2020, compared to just 41% of those managed by men.
The new cohort of investors and traders has their own characteristics and habits. Their parents and grandparents tended to invest much more conservatively, if at all. For many, their only exposure to risky assets was through a pension fund or managed savings / investment account. The wealthiest people may have been involved in mutual funds or may have owned shares of the company they worked for, but hardly any were interested in the mechanics of trading.
Millennials and Gen Z investors are much more active. They choose their broker carefully, paying attention to commission rates, bid / ask spreads and maintenance fees. Then they carefully research the instruments to trade, many doing their own technical analysis. This is one of the reasons we are so keen to include interactive charts and analysis tools on the Libertex platform. As we see an increase in the number of traders and investors, the lines are much more blurry than in the past. Of course, there are specialist day traders and fully passive buy and hold investors, but it’s not so black and white anymore. Many traders choose to keep part of their portfolio in index funds or cryptocurrencies as medium to long term investments.
Likewise, we see many long-term investors going into swing trading when opportunities arise. It is a characteristic of the younger generation to be adaptable and flexible. If we look back 20 or 30 years, day traders would almost certainly have had stock options and a small allocation of gold, but the number of day trading investors was close to zero. In my opinion, what creates this overlap is the democratization of trade and investment. Now everyone has access not only to markets but also to educational and analytical tools that did not exist before.
It seems that most new traders and investors are drawn to the desire to have more in their life and this is an integral part of our own Trade for More philosophy. They are the first generation who have experienced materially worse circumstances than their parents, and with very few other investment options available, it is only natural that they are drawn to the financial markets. The global pandemic has undoubtedly played an important role. Many people remained confined to their homes when the markets fell and, seeing the short-lived nature of the crash, decided to take advantage of the weakness in stock prices.
There are still regional differences, but not as pronounced as in previous years. Many market players in Asia are still much more risk averse than their counterparts in the United States and Europe. However, the use of leverage is starting to increase as traders and investors feel more comfortable taking a little more risk for higher returns. All of the new investors were mostly too young to notice the Great Recession of 2008-09 but have been through the COVID-19 crisis, and it is undoubtedly making a difference in their behavior. We are in the longest bull market in history, and a lot of young people think it will go on forever. We had a crash, sure, but it was a black swan event, and we hit new all-time highs.
Everyone has access not only to markets but also to educational and analytical tools that did not exist in the past.
This lack of experience with bear markets makes young investors much more bullish, which is why we see as many as three, four, five and even 10 baggers in the span of a few weeks or months. Typically, these types of gains would take years to accumulate, even in a galloping bull market. Many pundits would say this is the prelude to an all-powerful stock rout, but the perpetual bull market might just as well become a self-fulfilling prophecy – especially with external factors like low interest rates, minimal inflation and MMT in general.
The new generation of traders and investors are incredibly technologically savvy. They keep abreast of all the latest developments in trading programs and expect to have them available to them. An example would be our built-in graphical analysis tools. Once they know something like this is possible in the app, you have to offer it as a broker, or they will go elsewhere. We recognize this trend and do everything we can to follow it, just like any good broker should.
At Libertex, we have strived to make our application as functional and user-friendly as possible, which has won us both numerous industry awards and many new customers. Another feature that new entrants appreciate is our trading academy. Not many brokers offer free education, and it definitely helps us stand out from the crowd. At the same time, many young traders are looking for the best possible terms.
In order for a broker to attract these new traders and investors, their commission rates should be as low as possible. Some brokerages have advertised zero commission, just to hammer users on spreads, but the new generation of clients are really doing their homework. That’s why at Libertex, we offer fair fees with no hidden fees.
The younger generation is also much more influenced by ethical and ecological concerns. The buzz around renewable energies and electric vehicles is proof of this. You could argue that this is somewhat pragmatic behavior given that this technology is the future, but it seems to go beyond that. If we looked at how cheap oil was during the coronavirus crash, you would have thought more of them would have bought it for less than $ 20 a barrel or loaded on futures. But instead, they rushed into Tesla, Nio, Enphase, and others. The older generations did the opposite and crammed straight into US oil ETFs. Both have made great comebacks, but the younger generation has also gained moral ground.
However, while the priorities of Gen X and Baby Boomers are different, I don’t think it has to be a conflict. It’s just a matter of careful planning. Our older clients generally prefer less risky options like index funds, blue chip stocks and traditional currencies, while our younger users tend to go for tech stocks and crypto. When it comes to the platform itself, all of our users, regardless of age, appreciate the ease of use and the strong integration of tools like news, so there is no compromise to be made. . And if less tech-savvy clients find it difficult to use the trading platform, as a broker, you just need to have technical staff available around the clock to guide them. This is something we decided years ago when trading started to migrate online.
We are in the midst of a boom unlike anything the industry has ever seen, accelerated by the internet and greater connectivity, and if anything, the advent of 5G technology will only make the trend more important. Even if some of the current ‘new generation’ are overtaken by an even younger crowd, which is almost certain to happen to some extent, many will most likely return to trading or investing later in life.
But what I think is the most likely scenario is that we will keep the Millennials and Gen Z cohorts and then also their children and grandchildren. We just need to be on our guard as brokers to ensure we continue to meet the needs of all of our clients at all times. It is a difficult but laudable task and we are certainly ready to do it here at Libertex.