Despite the economic consequences of the Corona crisis, many equity markets are moving in positive territory. In the USA, providers such as Robinhood are making daily trading in shares easier and cheaper than before. Does this influence the trends?
While the economy is calling for billions of dollars in aid to survive the financial losses of the corona crisis, leading stock indexes are rising worldwide. This phenomenon, which does not seem to fit together at all, moves investors and analysts. On Wall Street the theory is going around that the new boom on the stock market is due to FinTech companies like Robinhood, which attract private investors with low fees. According to the business magazine Forbes, the major bank Barclays has taken a closer look at the situation. According to the magazine, three million new accounts were opened with Robinhood in the first quarter of 2020, a record number.
Robinhood stimulates business
In this country, eToro probably comes closest to the Robinhood business model. A central app gives private investors the opportunity to invest in asset classes ranging from shares, gold and ETFs to crypto currencies. Since everything is processed online and there is no need for traditional personal advice, such providers can score points with low fees. Robinhood even advertises with “free of charge”, which is not true if you take a closer look.
Barclays comes to the conclusion with Robinhood: Investors use the services, but they rarely make a profit. In this respect Robinhood customers are not the driving force for rising prices. One must therefore look at the current situation in a more differentiated way, as it involves several largely independent developments. More Robinhood customers at the same time rising share prices is in any case too short a period of time. Professional traders, however, would observe trends in Robinhood closely and include them in their strategies.
Stocks and crypto as a financial way out?
Stock market stories such as those from the e-vehicle manufacturers Tesla and Nikola with enormous price increases in a short period of time not only make the headlines. They also show – as do Bitcoin and Co. – that private investors as well as institutional investors are looking for ways to counteract inflationary risks. The consequences of the billions in aid for currency stability are hardly foreseeable; in their concepts, equities and crypto-currencies can compensate for inflation through price developments. As conservative solutions such as government bonds and savings books no longer guarantee returns, the demand for alternatives is growing.
Conclusion: Clever entry into promising asset classes
It has never been easier than today to implement investment strategies as a private individual. Providers such as Robinhood or eToro have indeed done pioneering work in this area. But many new investors are still experiencing losses, whereas the stock market professionals are realizing gains from almost every situation. The latter, however, are also familiar with the many ways to turn trends into profits, for example by betting on falling prices or by early detection of opportunities such as Bitcoin. So the clear recommendation is: Don’t be blinded by dubious promises of profits, but take the time to understand the new offers in detail. Then you are well on your way to identifying the financial instruments you want to handle confidently, even in macroeconomically uncertain times. A naive approach usually costs money, no matter how cleverly a FinTech app is designed.
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