The average trader or investor looks very different today compared to even just 10 or 15 years ago. The stereotype of the Ivy League or Oxbridge-educated male that was so ubiquitous in the era before the 2008 Great Financial Crisis has been completely done away with.
Perhaps the biggest driver behind this shift has been the internet and, more specifically, online brokerages like Libertex. In the past you would have needed social connections and a significant amount of money to invest in a fund or purchase individual stocks. Now all you need to do is register an account and deposit a token sum, and you are ready to go.
That said, it is evident that the majority of new traders and investors are from younger demographics. The average age of investors has dropped by between 10 and 15 percent globally, and this trend is set to continue. Saxo Markets recently published a report showing their average client age has dropped five years for men and four years for women, just between 2020 and 2021. Given the ease of access to quality information and huge choice in the market today, not to mention the pitifully low savings rates on offer, it makes perfect sense.
We are also seeing more female investors and traders. When the pandemic struck, there was a huge influx in the number of new trading accounts registered. The US broker Fidelity noted a seven percent increase in the number of accounts opened by men, compared to nine percent created by women. It also found that women tend to make better returns than men. Goldman Sachs discovered that this also applies to professional money management, with 43 percent of women-managed mutual funds outperforming their benchmark in 2020, contrasted with just 41 percent of those managed by men.
The new cohort of investors and traders have their own unique traits and habits. Their parents and grandparents tended to invest much more conservatively, if at all. For many, their only exposure to risk assets was via a pension fund or managed savings/investment account. Wealthier individuals may have been involved in mutual funds or perhaps owned shares in the company they worked for, but virtually none took an interest in the mechanics of trading.
Millennials and Gen Z investors are much more hands-on. They pick their broker carefully, paying attention to commission rates, bid/ask spreads and maintenance fees. Then, they carefully research which instruments to trade, with many conducting their own technical analysis. That is one reason we are so keen to include interactive charts and analysis tools on the Libertex platform. While we are seeing an increase in both traders and investors, the lines are much more blurred than in years past. Of course, there are specialist day traders and fully hands-off buy-and-hold investors, but it’s no longer as black and white. There are plenty of traders who are choosing to keep a portion of their portfolio in index funds or cryptocurrencies as medium-to-long-term investments.
Similarly, we are seeing many longer-term investors delve into swing trading when opportunities present themselves. It is a hallmark of the younger generation to be adaptable and flexible. If we look back 20 or 30 years, day traders would have almost certainly had some stock options and a small gold allocation, but the number of investors day trading was near zero. What is creating this overlap, in my view, is the democratisation of both trading and investing. Now, everyone 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 attracted by a desire for more in their lives and this is a huge part of our own Trade for More philosophy. This is the first generation that has been materially worse off than their parents and, with very few other investment options available, it is only natural they should be drawn to financial markets. The global pandemic has undoubtedly played a significant role. Many people were stuck at home when the markets tanked and, seeing the ephemeral nature of the crash, decided to take advantage of the low equities prices.
There are still regional differences, though not nearly as pronounced as in previous years. Many market participants in Asia are still much more risk-averse than their counterparts in the US and Europe. However, the use of leverage is beginning to increase as traders and investors there become more comfortable with taking a little more risk for the chance of higher returns. All the new investors were mostly too young to notice the Great Recession of 2008–09 but have lived through the COVID-19 crisis, and without a doubt this makes a difference to the way they behave. We are in the longest bull market in history, and many of the young think it will go on forever. We had a crash, sure, but this was a black swan event, and we have gone on to hit new all-time highs.
Everyone has access not only to the markets but also to educational and analytical tools that did not exist in the past
This lack of experience of bear markets makes young investors much more bullish, which is why we are seeing so many three, four, five and even 10 baggers in the space of a few weeks or months. Typically, those sorts of gains would take years to accumulate, even in a rampant bull market. Many experts would say this is the prelude to an almighty rout in stocks, but the perpetual bull market could just as easily 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 is incredibly technologically competent. They keep up with all the latest developments in trading programs and expect to have them at their disposal. One example would be our integrated chart analysis tools. Once they know that something like this is possible in-app, you have to offer it as a broker, or they will go elsewhere. We recognise this trend and are doing all we can to keep pace with it, as any good broker should.
At Libertex we have focused on making our app as functional and user-friendly as possible, which has won us both numerous industry awards and many new clients. Another feature we find new entrants appreciate is our trading academy. Not many brokers are offering 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.
For a broker to be able to attract these new traders and investors, their commission rates have to be as low as possible. Some brokerages have advertised zero commission, only to hammer users on spreads, but the new breed of clients really do their homework. That’s why we at Libertex offer fair fees with no hidden costs.
The younger generation is also far more influenced by ethical and green concerns. The buzz around renewables and electric vehicles is proof of this. You could say that it is somewhat pragmatic behaviour given that this technology is the future, but it does appear to go deeper than that. If we look at how cheap oil was during the coronavirus crash, you would have thought that more of them would have snapped it up at sub-$20 a barrel or loaded up on futures. But instead, they rushed into Tesla, Nio, Enphase and the like. Older generations did the opposite and piled straight into US oil ETFs. Both made handsome returns, but the younger generation won the moral high ground, too.
However, although the priorities of Gen Xers and Boomers are different, I don’t think it has to be a conflict. It is 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 go for tech stocks and crypto. When it comes to the platform itself, all our users, irrespective of age, appreciate the ease of use and strong integration of tools such as news, so there are no trade-offs there. And if any less tech-savvy clients experience difficulties using the trading platform, as a broker, you simply have to have round-the-clock technical staff on hand to walk them through it. That is something we decided was absolutely vital years ago, when trading first began migrating online.
We are in the middle of a boom unlike anything the industry has ever seen, accelerated by the internet and greater connectivity, and if anything, the advent of 5G technology will only make the trend more prominent. Even if some of the current ‘new generation’ is edged out by an even younger crowd, which is almost certain to occur to some extent, many will still most likely come back to trading or investing later in life.
But what I think is the most likely scenario is that we will retain the millennial and Gen Z cohorts and then also their children and grandchildren. We just have to stay on our toes as brokers to ensure that we continue to meet the needs of all our clients at all times. It’s a difficult but worthy task and one we here at Libertex are certainly up for.