Over the past two decades the stock market has been flipped upside down by the massive influx of retail traders using phone apps to trade. A recent study done by the National Bureau of Economic Research has demonstrated that traders using a smartphone to invest demonstrated a significantly higher probability of entering into failing positions.
For most investors this should be evidence enough to stop using phone apps to trade. Just by using these trading apps you are going to be putting yourself in a position to lose money. That is not the goal of Chronohistoria, a site where I teach people how to generate above average market returns.
Instead of using a phone app to trade or invest you should look into learning how to use free trading software such as ThinkorSwim. Not only will this give you more tools but it will also cut down on bad habits.
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Without further ado, let’s jump right into the article.
Phone Investing Apps Limit Trading Tools
Most retail traders only know how to buy a stock and resell it later for hopefully a higher value. Some are aware of what shorting is, but don’t know how to do it. The reason why? Because the trading app they are using on their phone purposely limits them to only buying and selling a stock.
What if I told you that there were hundreds of trading strategies. Some even let you make money regardless of if the stock goes up or down. A good example of such a trading strategy is the Iron Condor strategy, for those who are interested you can read about how to execute it by clicking here.
A retail investor will never be able to execute these advanced trading strategies however. This is because phone trading apps purposely limit the retail trader so that all of the money gets funneled into one or two stocks. This is why when you open your trading app there are stocks on the front page.
Now if that same retail trader learned how to use desktop trading software they could execute more advanced trading strategies. This gives the trader more ‘tools’ to make money in the stock market.
For example, recently I wrote an article that went over Gamestop and how you could trade an Iron Condor and regardless of which way the price went you would make 17% in about one month. This means that if you bought an iron condor you could sit back and so long as people continued to buy it you would make money.
Professional traders and hedge funds employ these advanced trading strategies all the time. When you are trading you are playing against these guys, so you better arm yourself with the best possible tools and knowledge at your disposal. This is why you should never use a phone app to either invest or trade.
Phone Apps Create Bad Trading Habits
Its no secret, phone trading apps are designed to take as much money as possible from their customers. This is done through the design of the app itself.
Next time you log onto your phone trading app you should look at the color scheme and layout. You will notice that when things are going well the stock and your portfolio value will be bright green.
However when you start losing money the application will show a bright red color instead. This is done on purpose as the red color induces panic in the trader and causes them to act to save their portfolio.
What happens is that when the trader tries harder to make a profit they end up losing more in the long run. This is because they don’t stick to their trading rules and start cutting corners taking on more risk.
The phone trading app company makes money regardless of whether you do. This is because they will sell the trading data to hedge funds and investment banks. For these companies they gamify the trading process, which leads many retail investors to take large risks time and time again. As a result…their portfolio evaporates into the hands of the hedge funds and investment banks who just bought the retail traders data. (source for Robinhood selling data to hedge funds for them to front run trades.)
The ethics of these phone trading apps have come under fire recently. A paper published in June of 2021 seeks to create a governing body to protect the average retail trader from these phone trading apps.
Simply put, don’t use a phone trading app. They are designed to be addictive and keep you trading, not to make you money.
Service Outages Can Destroy A Portfolio
Since retail traders don’t have access to the best tools and they are trading on a phone app designed to keep them playing, the odds of them making money are drastically reduced.
Can people make a full time career and income off trading…yes. However, in order to do that you need to be using professional trading software to give yourself the best possible chances. In fact I would venture to say that nobody is a professional full time trader only using a phone to trade.
Imagine this, you are trading on a phone app with $10,000 and all of a sudden your service cuts out. Your position tanks in value because you can’t sell fast enough and by the time your phone gets service again you have lost 80% of your position.
Using a phone trading app is going to destroy your portfolio. You can’t risk your financial future due to some service outage. Phone trading apps should be avoided at all costs because of this. All it would take is one or two service outages and your portfolio would be destroyed.
Using professional trading software you are on a landline at either an office or at home. Further, if your internet goes out often a broker will step in to liquidate the position. This has to be set up ahead of time by calling your broker but it’s worth it. Several times I have been saved by my brokers closing a position because I couldn’t get to it.
The allure of trading anywhere is nice, however it comes with significant risk in the form of losing service. Don’t put your financial future in the hands of your phone service provider.
Nearly Everyone Offers Commission Free Trades Now
Many retail investors were not in the market back when you had to pay between $7-$12 a trade ($14-$24 round trip). Robinhood in 2013 completely changed the industry when they created commission free trading.
For about four years this was a real reason to switch to the commission free phone trading app Robinhood. However in 2018 all major stock brokers in the United States switched to this commission free business model. Nowadays everyone except some boutique brokerage firms offer free trading on stocks.
Since everyone offers commission free trading there is no reason now to be using any of the phone trading apps. They literally offer nothing but drastically increase your chances of losing money in the long run.
Phone Trading Apps Are Slower Than Desktop Trading Software
If you are using a phone trading app you are essentially giving money away. The reason behind this is because you are slower to react on a phone then you would be by using a desktop or algorithm.
The world of professional trading knows this, that’s why they buy your data from firms such as Robinhood. If they know what you are going to trade then they can either bet with your or against you.
For example, a recent study done by the University of Indiana discovered that traders who use phones are at a significant disadvantage when compared to their peers on desktops. Not only were the phone trading apps making investors slower to respond to markets but also the retail traders demonstrated a significant increase in risk.
Simply put, using a phone app to trade significantly hurts your ability to achieve returns in the market. This is because you are trading against people using algorithms and large data sets. You can’t beat these guys on a phone, you need to have the correct software in order to respond fast enough.
There you have it, the 5 reasons why you should never use a phone trading app.
Most people get introduced to trading and investing through these phone trading apps. However once the retail trader feels up to it they should ‘graduate’ from a phone app to some professional trading software. There they will be able to maximize their potential profit and drastically cut down their risk.
Here at Chronohistoria I teach people how to generate above average market returns in investing. I routinely publish articles that go over investment research, methodologies/strategies, and tips/tricks so that you are better prepared to profit in today’s crazy markets.
Further, you can check out some of the other articles below.
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Until we meet again, I wish you the best of luck in your investing journey.