Today, trading in stocks or cryptocurrencies on online platforms is starting to become part of the mainstream.
Trading in stock markets used to be just a privilege for a narrow circle. However, technological advances in recent years have brought innovations that have made this type of risk-taking available to ordinary people as well. Many applications compete for the attention of newbie retail traders with offers such as commission-free trading.
In any case, it can still be said that success is still exclusive in the markets. The vast majority of traders continue to lose. Positive long-term returns are available to professional, experienced, educated investors and institutions with advanced technology. The question arises as to whether this will remain the case in the future. Today, brokers and landline phones are gone. As online trading itself becomes more accessible, will the trading success be available soon also?
Initial wing strikes
Although the world’s first Initial Public Offering has been made 400 years ago, trading itself was only possible within the stock market. This status quo was broken by the introduction of the electronic communication network (ECN), which allowed participants to trade stocks and currencies over-the-counter. The ECN was a real milestone in the development of trading, it was the change that accelerated the processes and developed the market into the form it is known today.
Owning shares and trading actively is not the same, but still we can get some insights looking at the data about the population’s confidence in shares.
In the United States, slightly more than half of the adult population owns shares. The younger generation (18–29), on the other hand, is only 32%. The data also show that the population with higher education is much more confidential about equities and 85% of graduates own shares. The stock’s investment sentiment has subsided since the 2008 crisis. The subsequent 62% turnout dropped to 55% today.
In the case of Cryptocurrencies, we saw the exact opposite. According to a survey by Finder, the number of Americans who own some form of cryptocurrency may have doubled in 2019. Thus, 7.95% in 2018 rose to 14.4% in 2019.
Cryptocurrencies are digital means of payment operating on a decentralized network. The fact that cryptocurrencies are very easy to access may also have contributed to this rapid growth. It will be enough to make a virtual wallet to buy through one of the exchanges. It is enough if someone sends some of their own from their wallet to ours.
How exclusive is it to be successful? Who are successful and why? Who are not?
Although trading is now available from a home computer, successful trading by the masses is still a long way off. The question arises as to how much it has helped the average person to invest easily. We know from statistics that more than 95% of traders lose in their trading.
How is the market entry strategy of an institution and a retailer different?
A retail trader uses almost exclusively technical analysis to make trading decisions. That is, it analyzes historical prices on a chart. Look for levels of support resistance or examine with some indicator whether it is worth selling or buying from the instrument.
In contrast, the tool palette of professionals is much more colorful and sophisticated. The essence of the mean reversion methodology is to use mathematics to determine the average price of a stock or asset. Price fluctuations from the average mean market entry opportunities. If the current market price is lower than the established average price, the stock is below price and worth buying from it.
Another popular method is arbitrage trading. Arbitrage is a profitable market situation due to the pricing differences of the same product in 2 different markets. In fact, arbitrage is a risk-free profit generation strategy.
The largest share trading turnover (73%) is provided by high-frequency trading. This trade is characterized by high turnover, a large number of trades and a very short holding period. This trade already requires technological sophistication.
We can see that the technical indicators and manual trading that retail traders operate are pretty much left behind from professionals. And how much does this matter? Very much! Right now, it’s like trying to race a horse against a sports car.
But how could a retail trader get such a technique? After all, it is clear that educational background is essential here, which can only be a small percentage of traders. This kind of sophistication can no longer be self-made. It is an inability for a person to accumulate so much knowledge. Instead, the so-called “trading technology tool vendors” will appear in the future. That is companies whose main profile will be the sale of advanced trader technology devices in an understandable and usable form. This can be imagined in a similar way to the acquisition of assets in any trade. No one will build a chainsaw for themselves if they want to cut down a tree, instead of buying one from the company that makes it.
Trading is not logging. Are there any indications that the advanced trading tools will indeed be sold, bringing retail traders to the same level as a professional investor?
Since this is by no means mainstream, the examples need to focus on emerging but attention-grabbing companies. One of these is the Paris-based b-cube.ai, which develops AI crypto bots. The project is currently dealing with the reproduction of strategies used by institutions in the cryptocurrency market, sold to retail traders. So, this is where the democratization of advanced trading technology is taking place. A company whose research and development results can be practically “rented” and we can start ourselves for results like a professional.
DISCLAIMER
Trading cryptocurrencies involves risk. The information provided on this website does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the article’s content as such. Author, website or the company associated with them does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions. Lastly, this article is not targeted at French citizens or residents.