Trading Apps: An Exciting Way to Invest, but Is Your Money Really Safe?

Prior to the launch of the popular trading app Robinhood, anyone who wanted to start trading had to invest a minimum of $500 to open an account, incurring a $5 to $10 fee for every trade. Robinhood cofounders Baiju Bhatt and Vladimir Tenev found these costs unnecessarily prohibitive, keeping ordinary people out of trading.

As Bhatt explained to CNBC, with no account minimums, Robinhood unlocked a market of investors who were previously unable to trade, essentially heralding a new era of microinvestors: ordinary people seeking to use trading to build a secure financial future, just as wealthy individuals have been doing for years.

The COVID-19 pandemic has been a contributing factor to the increased interest in stock trading apps, with more people staying at home, creating less footfall for in-person brokers. While market turbulence has been devastating for some companies, for others, it has created significant opportunities. Plus, market gains and increased financial literacy have attracted more and more people to the digital stock trading space.

Financial institutions are rapidly recognizing the need to invest in the development and expansion of their digital product ranges to reach new customers, particularly the tech-literate millennial and Gen Z demographics. Robinhood remains the most famous stock trading app, although a series of glitches in early 2021 dented the app’s reputation, coinciding with the emergence of big players like Charles Schwab and Fidelity in the trading app market. Nevertheless, Robinhood provides an easy-to-navigate platform for both novice and experienced investors, with added features such as cash management, fractional investments, portfolio profiles, and cryptocurrency options.

Other Popular Trading Apps

In September 2021, Business Insider named E-Trade Best Investment App Overall. The app recently eliminated many of its fees, though it does require a minimum investment of $500 before a user can start trading with a Core Portfolio.

With a user base of 24 million, Cash App introduced Cash App Investing in late 2020 targeted at beginner traders. Currently, the app only supports stocks, not options, mutual funds, or bonds. It is incompatible with trusts, IRAs, and joint accounts, and does not provide access to margin trading. However, all the investment-related activities it does support are free. One current option offered by Cash App that gives it an edge over other trading apps is its support for fractional shares, making it easier to invest in titans like Amazon.

Apps like Robinhood, E-Trade, and Cash App Investing have revolutionized the stock trading market. According to research, Germany leads the app trading market, reporting a 140 percent growth rate in 2020.

A new generation of investment apps have not only digitized stock-trading services, creating a more technologically advanced environment, but they have completely reinvented the customer experience, providing investors with a fresh, simple, effective, and engaging way to access the markets.

Are Trading Apps a Safe Form of Investment?

According to a Financial Times report, stock trading apps merely gamify the markets, doing little to improve the financial system or help investors in the long run. The report likened the digitization of stock trading to the impact of social networks on society, placing the financial system in peril as “likes” turned into “buys.” It also warned that vulnerable novice traders were simply succumbing to a new and more nefarious type of surveillance capitalism, with users oblivious of the fact that order flows of all their “free” trades were being shared with “bigger, richer fish.”

In addition, the report pointed out that users were tempted to trade as much as possible through digital nudges that are designed by behavioral scientists and made to be as addictive as possible.

There is no denying that investment has gone mobile, however, with millions of people using their devices to trade and invest wherever they are in the world. Fortunately, reputable app developers are prioritizing cybersecurity, putting protections in place to safeguard users.

Trading apps are a convenient way to access the markets, but it is important to remember that there are always inherent risks with investing in stocks and shares, be it online or via a brick-and-mortar broker. Just as share prices can mushroom overnight, prices can also drop, leaving even seasoned traders vulnerable to a devastating financial blow, particularly during periods of economic volatility.

Therefore, would-be traders need to perform due diligence to find the right platform for them. In terms of building wealth, Certified Financial Planner Erika Safran expresses skepticism regarding the viability of trading apps as a serious vehicle for building wealth. While Safran concedes that apps like Robinhood have a low barrier to entry, she cautions that psychologically, it does not feel like real money. She adds that investing is not a means of building short-term gains; instead, investments need time to grow.

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