A surge in brokerage accounts combined with speculation on risky stocks are a hazardous recipe, says one market watcher.
“People are new to trading and new to investing and want to take advantage of these wild swings,” Caleb Silver, editor-in-chief of Investopedia, tells Yahoo Finance’s The First Trade.
“These are the most dangerous times to start day trading ... This is when people really get hurt,” he added.
Silver says Investopedia is seeing a surge in searches “for everything from day-trading techniques, rules to live by for new day traders, to how to trade the options market.”
Some of the recent top stocks which new investors have been leaning into include Hertz (HTZ), which filed for bankruptcy protection in May; Nikola Motors (NKLA), the hybrid truck company which recently listed on the Nasdaq (^IXIC); Top Ships (TOPS), the penny stock; as well as Oasis Petroleum (OAS) and American Airlines (AAL)— all of which have seen massive swings recently.
‘This is a super volatile time’
Retail activity picked up in the first quarter as investors took advantage of zero commission platforms and saw an opportunity to ride the market rally.
“We see these account surging for Robinhood, we see online account activity growing at the Schwab's, E-trades and Fidelities of the world. Traffic to our own online brokers’ reviews is up three times already this year. So people are very interested in getting in,” he said.
Silver says the key for newbies is to know what they’re doing.
“This is a super volatile time. You could lose your shirt in a day. You could gain two shirts back the next day, but you have to know what your limits are,” he said.
Investopedia’s ‘Investor Anxiety Index,’ a gauge of investor sentiment, shows a shift over the past week from personal finance terms like “bankruptcy: and ‘“foreclosures,” to “market performance.”
“It went to market based anxiety to where people are looking up, ‘recession’, ‘bear market’, a ‘bear market rally’, ‘how to trade volatility’,” said Silver.
Ines covers the US stock market from the floor of the New York Exchange. Follow her on Twitter at @inesreports.