A New Era Of Finance

This week I want to share some observations I've made about how the growth and mass adoption of technology has influenced our economic system.

To begin, I want to put my technological and financial perspectives into context.

I am 28 years old, have been on a computer since 6, and have had nearly unimpeded internet access since 10. While I am not old enough to have been on the internet in the true early days nor am I young enough to have had ‘smart devices’ my entire life, I have interacted with technology since I was learning to write and seen a crazy growth of technology within my lifetime.

While I’ve been working for 14 years, I’ve been financially irresponsible for 12 of them. Only over the past 2 years have I been learning as much as possible and been able to implement some actions over the past year. Despite only being in the finance space for a short time, I have been trying my best to not only learn about current events but also the history of finance. 

Throughout that process, I’ve had some ideas about how our technological advancements have influenced the financial space. These are opinions and observations so please take everything with a massive grain of salt. Also, I will turn comments on this week so please share your perspectives and opinions with me!

From my understanding of stock trading in the past, what was originally done by transferring paper stocks hand to hand in person became people going through intermediaries (companies) to purchase stocks, and hold the stocks, on their behalf. As the internet became more widely adopted, people took those transactions online. Throughout the majority of this period, fees on trades were high. While this transition put the power more in the hands of the individual, it still had a high barrier to entry requiring a computer, internet, and decent capital to make the high fees a small percentage of your trading volume.

With the creation of the smartphone, more people having access to the internet, and  applications becoming created for everything, trading has changed. Now you can download one of a plethora of apps to purchase securities with. All the apps are competing to provide the cheapest trading fees. The user never fully has access to what they purchased (you are trusting the company to actually fulfill your order and hold what you purchased). I’d like to be optimistic and think every company in existence is operating above board, I am very skeptical of that view point.

Realistically, the promotion of options trading has me worried. In my limited knowledge, I feel that in order for our market to truly handle options trading properly, people need to trade options properly. By that I mean, when you short a stock those shares need to be actually purchased, held, and then sold according to the options trade (or an agreement of similar accord needs to be struck). If market makers are not actually holding/moving the assets that are being traded, it could create some wonky market performance. Mind you, I have no claim to that statement, it’s just a worry of mine.

Besides that fear (which probably is un-based) I have one more fear, that actually scares me more. While at their core, trading options are a legitimate financial tool and with the right knowledge provide a great hedge for investors, the promotion of options trading to retail investors feels like gambling. I am not saying retail investors can not be informed enough to educationally trade options, nor am I saying options trading should not be available to the retail investor. What I am saying is the education around options trading is not as easily accessible as placing option trades.

I have not actually tried to trade options on mobile apps (or anywhere for that matter) so I can not say how easy it is but the meme-ification of huge options positions and massive debt to trading platforms leads me to believe it is easier than it should be and absolutely feels like gambling. I don't want to discredit short selling organizations because I legit feel like they are super important to maintain accountability in the market. But, I do feel like without the research and understanding of the risks, trading options can be no different than gambling.

I also am worried people are not talking about how options trading is like gambling. I guess since the mass adoption of gambling is currently happening across the US, I shouldn't be surprised people are flocking to options trading. But grambling is a tax on the poor and the under-informed, participating in the financial market should be nothing like that.

I am truly worried that as trading becomes even more available to people, more people will get trapped in super risky trades without the proper understanding of what they're doing. At the end of the day, the trading apps profit off of the user so they have no incentive to restrict the trades available (especially the trades where the company is most likely to profit). But, I feel like our market shifting towards uninformed traders making highly risky trades will not be a good thing for society.

Please let me know what you think!