November 5, 2020
From coronavirus to the upcoming presidential election, 2020 has been a turbulent year for the stock market. Despite this, a growing number of consumers are investing through stock trading apps. From beginner to experienced investors, trading apps provide a simple, hands-on approach to buying and selling stocks, putting consumer’s funds at their fingertips. With such ease comes a substantial amount of risk, as inexperienced users may face large financial losses without proper guidance.
Investment App’s Increasing Popularity
Fintech innovations have made it easier than ever to access and build one’s financial portfolio. From micro-investment apps, Robo-advisors to mobile stock trading programs, consumers have a myriad of options when it comes to managing their assets. Though investment apps have been around for years, the pandemic has accelerated their growth. According to Adjust, investment app sessions were up 88% from January to June of 2020, making it the second-fastest-growing vertical of the year. Key drivers of this market growth include a growing number of remote workers, low barrier of entry, low commissions, app simplicity, and increased financial literacy. These factors have created a cheaper and easier way to invest, opening markets to more people than ever before. When looking at investor demographics, these apps have grown in popularity amongst younger generations, such as millennials and gen x consumers, as stated by The Economist.
Problems Stock Trading Apps
Trading apps attract many novice investors, providing intuitive tools to help manage portfolios and educate users on the stock market. Despite this, investment apps pose several problems. Due to a lack of financial literacy and the ease of trading, many traders have faced catastrophic financial losses. Many of these apps have gamified stock trading, making it dangerously simple to access and move around funds. For amateur investors, Robo-advisor technology may not provide enough information to make informed financial decisions. Investment apps fail to consider the user’s debt, taxes, and retirement plans, making it difficult for investors to see the big picture of where their money is going. With this, in-person financial consulting remains the best option for inexperienced traders, providing more personalized and guided investing strategies.
What the Future Holds
The investment app industry continues to evolve, with many following Robinhood by eliminating commission fees to open the door to more investors. As more consumers use these services to manage their assets, financial literacy becomes crucial to prevent poor investments. Improving algorithms to better assess risk tolerance, collecting more information on consumer financial portfolios, and providing investors with substantial information before making investment decisions may help users manage their money responsibly, while enhancing app’s overall user experiences.