Online trading

FMA warns against risky investments as online trading grows

Rising real estate prices, low interest rates, the desire to learn, and the fear of missing out are driving more and more people to use retail e-commerce platforms.

Photo: 123RF

The Autorité des marchés financiers has researched the behavior and intentions of the large number of new retail investors who have started using these tools.

He revealed that the three most common reasons investors wanted to use these platforms were to make their money grow, they were cheap to use, and they wanted to learn more about investing in general.

Recent economic conditions were also a motivating factor, with respondents saying that low interest rates and the unaffordability of housing caused them to look for new ways to invest.

“These online platforms have made it easier for people to access the markets and learn how to invest – 34% of investors said they now had a better understanding of the markets after using the platforms,” ​​the director said. FMA General, Rob Everett.

The cornerstone of most wallets was KiwiSaver, an investment property or savings account. Stocks, bonds and exchange-traded funds made up about 47% of their portfolio.

Cryptocurrencies made up about 3.2% of people’s investment mix and derivatives made up less than 1%.

Everett said it was concerning that more inexperienced investors were looking to invest their money in riskier assets.

“We would be really concerned if it felt like people were putting their savings into a cryptocurrency…because the risk there is very different from a standard investment.”

The majority of investors appeared to adopt a buy and hold investment strategy, but about 2% traded daily.

Invest for

Everett said nearly a third of investors said they got into an investment in the past two years because they feared missing out (fomo).

“And 14% of investors are looking for a ‘moon shot,’ indicating they’re okay with risking a lot of money if there’s a big reward.”

He said it was only of concern if people invested large sums of money, which they could not afford to lose, in those investments, Everett said.

Just over 80% of respondents said they consulted at least one source of information when making investment decisions, with online forums being the most common, followed by press reports and advice from people. whom they trust.

However, less than half considered a company’s annual report or a fund’s disclosure document when making a decision.

Everett said this is becoming a common theme among new investors entering the market.

“We just have to recognize that risk of a lot of people listening to commentators who really don’t have a lot of experience.”

A new study by the Financial Markets Authority (FMA) shows the investment profile of people using retail trading platforms.

A new study by the Financial Markets Authority (FMA) shows the investment profile of people using retail trading platforms.
Photo: Provided

The research also divided the respondents into four categories which revealed their investor profile, speculators, planters, opportunists and hobbyists.

He said he hoped more investors would enter the planter category over time.

Most of the investors were generally European men between the ages of 25 and 34.

The chief executive of equity trading platform Hatch has pushed back against suggestions from uninformed and fad-driven new investors.

Kristen Lunman said FOMO could be positive because it has seen people, who may have been hesitant in the past, enter the stock market for the first time.

“There’s a positive in that. [it is showing people] there is an alternative to putting money into work.”

She played down concerns about investors’ financial savvy, saying her clients don’t risk large sums of money and learn on the job.

“When we launched [Hatch] there was this concern that people were going to put their life savings, or their house deposits, or get rid of their KiwiSavers and [start investing].

“But we found just the opposite.”

Data shows that people start small, learn by doing, and increase their investments over time, she said.