How to cater for a new generation of traders and investors

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Author: Marios Chailis, Chief Marketing Officer, Libertex Group

July 14, 2021

The average trader or investor looks very different today than it did 10 or 15 years ago. The Ivy League or Oxbridge educated male stereotype that was so ubiquitous in the pre-2008 financial crisis era has been completely erased.

Perhaps the biggest driver behind this shift has been the internet and especially online brokerages like Libertex. In the past, you needed social contacts and a significant amount of money to invest in a fund or buy individual stocks. Now all you have to do is register an account and deposit a token amount and you’re good to go.

However, it is evident that the majority of new traders and investors are from a younger population. The average age of investors around the world is down 10 to 15 percent, and this trend is set to continue. Saxo Markets recently released a report that found the average age of its customers decreased by five years for men and four years for women between 2020 and 2021. Given the easy access to quality information and the wide choice in the market today, not to mention the pathetically low savings rates, that makes perfect sense.

We’re also seeing more female investors and traders. When the pandemic broke out there was a huge influx of new trading accounts being registered. The US broker Fidelity found that the number of accounts opened by men has increased by seven percent compared to nine percent opened by women. It also found that women tend to get better returns than men. Goldman Sachs found that the same goes for professional money management: 43 percent of mutual funds managed by women outperformed their benchmark in 2020, compared with just 41 percent of those managed by men.

The new cohort of investors and traders has their own unique characteristics and habits. Her parents and grandparents invested much more conservatively, if at all. For many, their only exposure to risk investments was through a pension fund or a managed savings / investment account. Wealthier individuals may have had stakes in mutual funds or owned stocks in the company they worked for, but virtually no one cared about the mechanics of trading.

To touch
Millennials and Generation Z investors are much more hands-on. They choose their broker carefully, paying attention to commission rates, bid / ask spreads, and maintenance fees. Then they carefully research which instruments to trade, with many doing their own technical analysis. That is one of the reasons we are very interested in adding interactive charts and analysis tools to the Libertex platform. While we’re seeing spikes in both traders and investors, the lines are much more blurred than they have been in years past. Of course there are specialized day traders and completely carefree buy-and-hold investors, but it’s not that black and white anymore. There are many traders who choose to hold part of their portfolio as a medium to long-term investment in index funds or cryptocurrencies.

Similarly, we see many longer-term investors dive into swing trading when opportunities arise. Being adaptable and flexible is a hallmark of the young generation. If we look back 20 or 30 years, day traders would almost certainly have had some stock options and a small gold allocation, but the number of day trading investors was close to zero. What is causing this overlap in my view is the democratization of both trade and investment. Everyone now has access not only to the markets, but also to educational and analytical tools that did not exist in the past.

It seems that most new traders and investors are drawn to wanting more in their lives and this is a big part of our own Trade for More philosophy. These are the first generation who are far worse off than their parents, and with very few other investment options out there, it is only natural that they should be drawn to the financial markets. The global pandemic has undoubtedly played a significant role. Many people stayed stuck at home when markets weakened and, given the short-lived nature of the crash, decided to take advantage of low stock prices.

Bullish
Regional differences still exist, albeit not nearly as strong as in previous years. Many market participants in Asia are still significantly more risk averse than their counterparts in the USA and Europe. However, the use of leverage is starting to increase as traders and investors become more comfortable there to take a little more risk in order to get higher returns. All new investors were mostly too young to notice the 2008-09 Great Recession but got through the COVID-19 crisis and this is undoubtedly influencing their behavior. We are in the longest bull market in history and a lot of the young people think it will go on forever. We did have a crash, but this was a Black Swan event and we made new all-time highs.

Everyone not only has access to the 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 optimistic, which is why we see so many three, four, five, and even ten excavators in a matter of weeks or months. Ordinarily, it would take years for these types of profits to accumulate, even in a rampant bull market. Many experts would say this is the prelude to an all-powerful stock flight, but the perennial bull market might 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 competent. They keep abreast of the latest developments in trading programs and expect them to be available to them. One example is our integrated chart analysis tools. As soon as they know that something like this is possible in the app, you have to offer it as a broker or they go elsewhere. We recognize this trend and do everything we can to keep up with it as any good broker should.
At Libertex, we’ve focused on making our app as functional and user-friendly as possible, which has earned us numerous industry awards as well as many new customers. Another feature that new entrants will appreciate is our commercial academy. Not many brokers offer free education and this definitely helps us stand out from the crowd. At the same time, many of the younger traders are looking for the best possible terms they can find.

In order for a broker to attract these new traders and investors, their commission rates must be as low as possible. Some brokers haven’t announced any commission just to pound users on spreads, but the new generation of clients are really doing their homework. That’s why we at Libertex offer fair fees with no hidden costs.

Ethically
The younger generation is also much more influenced by ethical and green concerns. The enthusiasm for renewable energies and electric vehicles is proof of this. You could say that it’s a bit of pragmatic behavior considering that this technology is the future, but it seems to go deeper. If we look at how cheap oil was during the coronavirus crash, you’d have thought that more of them would have bought it or loaded it into futures for under $ 20 a barrel. But instead they pounced on Tesla, Nio, Enphase and the like. Older generations did the opposite, getting straight into US oil ETFs. Both made nice returns, but the younger generation also gained moral superiority.

Although Gen Xers and Boomers have different priorities, I think it doesn’t have 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 gravitate towards technology stocks and cryptocurrencies. As for the platform itself, all of our users, regardless of age, appreciate the ease of use and the strong integration of tools such as news, so that no compromises have to be made here. And if less tech-savvy customers have difficulty using the trading platform, as a broker you simply need to have technical staff available around the clock to guide them through the trading platform. This is something that we decided to be absolutely crucial years ago when retail started migrating online.

We’re in the middle of a boom like the industry has never seen before, accelerated by the internet and greater connectivity, and if anything, the advent of 5G technology will only make the trend more popular. Even if part of the current “new generation” is being ousted by an even younger crowd, which to some extent almost certainly will be, many will likely return to trading or investing later in life.

But what I think is the most likely scenario is that we’ll keep the Millennial and Gen Z cohorts and then their children and grandchildren as well. We just need to stay on our toes as brokers to ensure that we continue to serve the needs of all of our clients at all times. It’s a difficult but rewarding task, and here at Libertex we are certainly ready.

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