If you’ve been following the financial news over the past couple of weeks then you’ve almost certainly heard the recent uproar around GameStop. The short version is this: individual market traders started buying GameStop shares in large volumes, driving the prices up and causing problems for hedge funds that had bet on the prices continuing to fall. The result is a battle between the retail traders – that’s everyday people who trade from their own personal accounts – and the institutions who are trading on behalf of large groups of investors.
The result is that many people are hearing about ‘retail trading’ for the first time and wondering whether they should jump on the bandwagon. While it’s easy enough to get started, the risks can be enormous, which is why many refer to this type of trading as closer to gambling than to investment. The GameStop saga shows this all too clearly: while prices continue to fluctuate, many traders are seeing the value of their shares fall significantly, with profits wiped out and the potential for huge losses.
That being said, for those who have spare money that they can afford to lose, there’s the potential to make a lot of profit.
Who can become a retail trader?
Anyone with some spare money to spend can get started with retail trading. You start by setting up an account with a stockbroker, many of whom now have apps that will allow you to buy and sell stocks and shares in minutes. It’s wise to set up an account with a company that’s well known and well regarded. Popular brokers include IG, FinecoBank and Hargreaves Lansdown.
How do you know which stocks to buy and when to sell?
One of the major differences between retail trading and investing via a stocks and shares bank account is the fact that you’ll have to make your own decisions about which stocks and shares to buy. You’ll also need to decide on the right time to sell them. This can be very intimidating for a new investor, so it’s essential that you do your research before getting started.
IG actually allow would be traders to set up a demo account and practice trading with fake money. This is a good option if you’re interested in trying out potential trading strategies. There are also online communities where users discuss trading strategies, and websites such as Motley Fool that are dedicated to offering investment advice.
What are the risks?
We’ve already mentioned this, but it’s worth repeating: there is a real risk that you could lose your money. That’s especially true for people who only have a limited knowledge of the stock market, but the stock market is fickle and even those who do a lot of research may see their investment plummet. Try thinking of retail trading as a hobby rather than an investment activity, and budgeting for it accordingly.
Are there any associated fees?
Buying and selling stock costs money, and brokerages will often charge you a fixed monthly fee based on the number of trades that you make. You’ll also be expected to pay a fund management fee, set at a percent of your overall fund value.