An upsurge in day trading by the young means we need to educate them properly

A while back I was chatting with my teenage son. He was describing how he was buying and selling designer trainers and making a neat profit. It was true, we were forever having to drop off a parcel for him at the Post Office or answer the door to yet another delivery.

What was especially lucrative, he said, was if he got a place on one of the “drops”, the special sales at one of the stores. Then he could make a killing. But, I said, it was still risky, he could end up with a pair that were no longer in such demand – he was prone to the vagaries of fashion.

Traditional, stick-in-the-mud that I am, I said there was a guaranteed method of making steady money. Which was to set up an exchange, like the London Stock Exchange, for people trading sneakers. He snorted and replied there already was one, called StockX. He used it constantly and yes, it ran just like a stock exchange, with different markets for a variety of items, including shoes, streetwear, jewellery, watches.

I checked, he’s right, StockX does operate similar to a stock market, with only verified goods listed (same as listing requirements for a company), and fully transparent buying and selling prices. I remember thinking that it was good for him to learn how this type of marketplace operates, that he might develop a taste for it.

Sure enough, he now says he wants to trade the real thing, he wishes to buy and sell shares, to play the actual stock market. While he’s at it, too, he’d like to invest in bitcoin.

I found myself having to explain to him some of the realities of the markets, that shares can go down as well as up, that if something seems too good to be true that’s because it usually is, that there are two sides to a trade, that for every winner there is often a loser. It occurred, not for the first time, that this should be taught in schools, that people should be educated in how they operate, and the dangers.

There is, though, a pressing current need. There is an upsurge in day trading, especially among the young, many of whom have caught a taste it from dabbling in shoes and other clothing, like my son. The reported rewards to be made on bitcoin and other cryptocurrencies is another driver, plus the boredom of being obliged to stay at home in Covid lockdowns and wanting some “action”.

One of the leading sellers of the riskier, derivative bets is experiencing a boom in its business. Pre-tax profits at Plus500 jumped to a record $523.3m last year, from $189.3m a year earlier, the result of individual speculators taking punts on movements in financial markets using contracts for difference on its online trading platform.

Plus500 saw its active customers more than double to 434,296 from 199,720 in 2019. The number of derivatives trades executed by clients jumped to more than 82 million from about 35 million the previous year, while client deposits almost trebled to $2.9bn.

The firm is based in Israel but listed in London. Plus500, which provides contracts-for-difference, derivatives enabling customers to make bets on financial markets from shares and bonds to commodities and currencies, is just one of many. Companies that cater for amateur traders in the US and UK are seeing record revenues.

This, though, should cause alarm bells to ring. Do they really know what they’re doing? Are they wise to how the market may turn suddenly? Can they afford to lose?

I am not alone. Lord Lee, the former Conservative minister who is an active investor himself and was hailed in 2003 as the first person in Britain to make a million from owning an ISA, is also concerned. Lee has tabled a question, asking ministers “if they will hold talks with representatives of the major television channels, the Financial Conduct Authority and Ofcom to establish modus operandi to enable the broadcasting of investment-focused programmes thus encouraging wider share ownership, particularly of UK-quoted companies”.

Lee is the author of How to Make a Million... Slowly, and the children’s book Yummi Yoghurt – A First Taste of Stock Market Investment. A champion of small investors, Lee drew attention to the lack of mainstream television coverage of stock market investing as “ludicrous” when, for example, compared with the unfettered amount of betting and gaming advertising.

While TV programmes about the stock market may not command big enough audiences for prime time, the fact is the rules and regulations applied by the Financial Conduct Authority, Ofcom, the broadcast regulator, severely restrict what can and cannot be shown – so much so that trying to make a programme becomes difficult and unworthwhile. Anything that is promoting or recommending, or could be interpreted as promoting or recommending, specific shares and investments is strictly off limits.

We are playing with fire here. This new generation of mainly young day traders cannot be left to find out from parents or others the pitfalls of investing. It’s too haphazard. They must be educated properly, in schools and via TV. There is another way of learning, which is from their mistakes, but given the volatility in bitcoin and crypto, not to mention some of the financial instruments being traded, that could prove hideously painful and blight a lot of lives. They must be made aware.