If you have a few minutes to spare, conduct the following experiment: Type a few keywords like “Bitcoin”, “Ethereum Price” or “Crypto Prediction” into a YouTube search and see the resulting videos that appear. Almost definitely, the algorithm is going to provide you with a slew of videos from ‘experts’, offering financial advice and tips on investing in cryptocurrency and beyond. That, in and of itself, is not a bad thing, and some of the videos are interesting and insightful. But there is a seduction to them (see how many have charts suggesting huge gains are imminent) and a relentless positivity that seems detached from the reality of trading and investment.
Of course, much of this has been turbocharged by the rise of FinTech trading platforms. Again, those platforms are not bad in an objective sense. They have offered access to investment opportunities to millions of people around the world, opening up a new world for amateur traders and effectively cutting out the middleman of financial advisors. People can – and do – make money from trading and investing on these platforms, but the problem is that there is a suggestion that everyone does. And this could not be further from the truth.
Day trading and betting should be synonymous terms
Indeed, if you see some of the small print from the regulated platforms, you will find that many carry a disclaimer, something like “70% of accounts will lose money when trading with this platform”. Now, there is a bit more to it than seven out of ten people losing money, and we will explain that a little later. But, for the moment, doesn’t it seem the case that this is a type of gambling? One where the risks of losing money are akin to placing a sports bet or spin on a roulette wheel?
In fact, if you play live casino games like blackjack, which is known to have a low house edge, you might even argue that the probability of success is greater. Now, to be clear, we aren’t recommending you play casino games to make money – far from it. The comparison is simply there to highlight that online trading is comparable to gambling
But let’s get back to that stat where seven out of ten accounts lose money. The crucial point here is that this involves trading, normally products like CFDs (contract for difference). If you invest, as opposed to trade, the common consensus is that stocks will rise over time. It might be a bumpy ride along the way, but you’d expect a ten-year investment in the stock market (with products like an ETF) to make a return. History says as such.
Greater oversight should be given to online trading
However, there should be a clear demarcation between investing and trading, and these FinTech sites tend to focus on the latter. We mentioned CFDs earlier. And without going into a full explanation, they are basically a bet on whether a product (stocks, crypto, fiat currencies, indices, commodities) will go up or down over a short period of time (it’s the reason they call it “Day Trading”.
The keyword here is “bet” because that’s what it is. You might believe that Bitcoin will increase in value over the next ten years – and there is sound reasoning for that – but have you ever tried to predict its cycle in a day?
Perhaps our grievance here is that modern FinTech trading is undoubtedly a form of gambling, but it is not treated as such. YouTube and Twitch, for example, regulate gambling content, but they do not pay any attention to those videos handing out trading advice. Again, we should stress that trading is not a bad thing in and of itself.
Yet, it should be viewed with caution. Like gambling, it should be presented as something you can do with money you can afford to lose. The problem is that the opposite often occurs, as it is packaged as a way to make instant riches. The reality is very different.