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  02 Jul 2022  Reddit Stocks and Investing Red Flags - Advice from a Regulated Investment Firm

Reddit Stocks and Investing Red Flags - Advice from a Regulated Investment Firm

SPOTLIGHT
Published : Jul 2, 2022, 8:24 pm IST
Updated : Jul 2, 2022, 8:24 pm IST

An online brokerage firm is setting out to bust some of the most pervasive investing myths and help inexperienced investors spot red flags

 Short squeezes and ‘Reddit stocks’ - stocks that gain wild levels of interest in online communities - like the Gamestop episode in early 2021 - are a great example of rare ‘quick wins’ being presented as routine.
  Short squeezes and ‘Reddit stocks’ - stocks that gain wild levels of interest in online communities - like the Gamestop episode in early 2021 - are a great example of rare ‘quick wins’ being presented as routine.

An online brokerage firm is setting out to bust some of the most pervasive investing myths and help inexperienced investors spot red flags from potential scammers.

INGOT Brokers, a regulated online brokerage firm that serves clients from different jurisdictions, believes inexperienced investors may be being put off from taking control of their financial future by misconceptions about the sector and unrealistic expectations:

“People look at this industry as a form of gambling and it’s a hit or miss. The reality is that it’s like a profession; you need knowledge, experience, and strategy,” says Ahmad Khawanky, Chief Revenue Officer at INGOT Brokers.

“The old adage ‘time in the market beats timing the market’ is still true today,” continues Khawanky. “There are always opportunities, and we want to see people coming to investing and learning about these, but taking a cautious approach and focusing their investing around calculated risks. Over time, having a consistent position that’s cautious but optimistic should always beat dipping in and out of the market for ‘quick wins'. We want people to be able to benefit from different market states without exposing themselves to unnecessary risk. Quick wins sound great, but it’s not a sustainable approach.”

Short squeezes and ‘Reddit stocks’ - stocks that gain wild levels of interest in online communities - like the Gamestop episode in early 2021 - are a great example of rare ‘quick wins’ being presented as routine.

“These scenarios always produce losers because they never last,” says Khawanky. “The people who really suffer in these situations are the investors who’ve tried to piggyback onto the short squeeze once it’s started. That’s because demand for the shares drops dramatically once the position has been covered, seeing hoards of retail investors heading for the exit door while attempting to protect profits and minimise losses.”

There’s absolutely no question that some unfortunate retail investors will have been stung by margin calls or completely closed out of their position due to having an insufficient equity margin. In plain English, margin calls and closing out (stop out) occur to protect the client from losing more than they have deposited. They usually happen when the equity reaches a specified percentage of the margin.

“This is bad for markets because in the long run, markets should want to attract more investors, not fewer. It’s also bad for reputable platforms and brokers because it harms the trust that many of us work hard to build up", says Khawanky.

“Our recommendations for new investors is to study more, start with a demo account, take your time, get to know the markets, get to know what affects asset prices and how trading platforms work.”

Khawanky believes it’s incumbent on brokers, regulators and even seasoned investors to present a united front against the hyping up of high risk, volatile stocks and to make investing a welcoming experience for novices.

“Only once you’re confident, should you start trading with a small amount of money, while at the same time slowly building yourself up to a knowledge level that supports your goals by attending seminars and webinars, joining one-on-one and group training sessions, watching and reading educational videos and articles.”

“There’s a part to play for everyone to create an environment that supports sustainable, realistic growth for new investors.”

“If anyone is telling you about their quick wins, immediate returns or huge profits, be suspicious. Someone may have got lucky once and it does happen and people did get rich off the Gamestop squeeze, but they basically got there by gambling. That’s not sustainable.”

 

Disclaimer: No Asian Age journalist was involved in creating this content. The group also takes no responsibility for this content.

Tags: infocus