According to a report by Aite Group, online trading is on the rise. About a quarter of all US adults with internet access are now retail investors. These self-directed investors making up a large group of around 50 million people are amateur traders. This is in stark contrast to the just 2.8 million registered professionals associated with investing.
It also means that we’re headed into dangerous territory as more and more retail investors throw money they can’t afford to lose at inflated stocks based on emotion or market hype.
In an article for Fobes, David Trainer talks about the danger–and rise–of what the industry calls “noise traders.” These are individuals who distort the market by trading with accurate or incomplete information. Self-directed investors are particularly susceptible to this type of din.
Although noise traders have been around for many years, industry professionals and academics have always brushed them off as having little to no effect on the market overall.
But over the last 20 years, which includes the .com bubble, the housing bubble, and one of the largest financial crises of our time, the influence of noise traders can no longer be ignored. And with the rise of investment platforms like Robinhood and TradeStation for self-directed investors, the influence of noise traders is growing.
Noise Traders Hype the Markets
It’s hardly surprising that interest in investing online is growing. With the rise of exciting alternative investments such as cryptocurrencies and pot stocks, along with advancements in technology allowing people to buy and sell online, it’s simply easier and more attractive to younger people than investing in paper stocks.
Anyone with an internet connection and a bank account can read a few articles,