why trading isn't investing

CIRCA5000 co-founder Tom McGillycuddy reflects on the rise of trading platforms.

When Matt and I first started working on the idea that became CIRCA5000, accessibility was at the forefront of our minds. Investing, especially investing for a better future, was only available to rich people or institutions, and we felt like that was a huge financial inclusion issue. 

Investing, when done right, is one of the main ways for people to build wealth over the long term, and keeping so many people out of this felt wrong to us.

And so we started CIRCA5000, previously known as tickr. We built our core investment product around four key principles of proper investing:

  • Think long-term. Think in years not days or weeks.
  • Diversify. Don’t put all your eggs in one basket.
  • Invest regularly. Invest steadily each month to take the emotion out of the decision.
  • Have an impact. Invest in companies driving a positive future for us all.

This way of investing, done over many years, can produce fantastic results for people. This is the form of investing that we wanted to “democratise”.

The word “democratise” (which I’ve grown to hate because of its overuse), has been used a lot in reaction to trading platforms gaining prominence and events like the GameStop trading frenzy earlier in 2021. But what is being opened up to people, for me, has some serious ethical issues.

Trading apps live off the gamification of their customers’ attention to drive them to transact more. The way they earn fees (whether explicitly or behind the scenes) tells you all you need to know about where their incentives lie. This encourages short term behaviour, and can often lead to terrible results for their customers. A lot of these customers are first time investors, or inexperienced investors, and they are trading in a dangerous way.

In my mind, it’s the equivalent of getting someone who can’t swim to jump in shark infested waters. The shark might not bite you straight away, but you will be in serious trouble eventually.

“Democratising” trading derivatives and day trading seems like a bad idea to me. Dentists train for 5 years before being allowed to practise, and this seems like a good idea. But if one day my dad rang me telling me he had bought a starter kit online that was aimed at “democratising” dentistry and was getting stuck in on my mum’s teeth, I’d be screaming at him to stop.

Not everything should be democratised. Some things should only be done by experienced and qualified people.

Proper investing should 100% be democratised. Proper investing should 100% be open to everyone. That is why we founded CIRCA5000. But day trading and buying derivatives should at least have some guardrails around them, and they certainly shouldn’t be gamified. It might have worked out for some people involved in the GameStop trade but with any form of betting, eventually the house always wins. Just to flag: I’m glad it worked out for some people, not least because they were fighting against short-selling hedge funds with whom I also have ethical issues.

This form of investing has absolutely nothing to do with creating a positive impact in the underlying economy. It is a me vs. you battle to see who wins short-term. Whereas impact investing, which is obviously very close to our hearts, is about investing in the companies of tomorrow, with a view to them being able to raise funds to expand their impact, and ultimately build a better future for us all.

Trading in and out of random companies for the sake of beating someone on the other side of the trade isn’t going to push us any closer to solving some of the big problems that we face. Besides, if capital markets aren’t about allocating capital to useful companies tackling real problems to improve our collective future, what’s their purpose?

The GameStop situation made me think: what if all this attention was aimed at future-building companies; what could the mechanisms within capital markets help us to achieve then?

In wake of the rise of trading apps, I hope the spotlight gets shone on long-term investing platforms that encourage good investing behaviours. And I also hope people who would otherwise have been excluded from this industry manage to build wealth for themselves, sustainably, for the long-term. Because, there is a big positive to take from all of this: people are starting to invest for the first time. They may not be doing it in a way that will benefit them long-term, but it proves the interest and appetite is there.

I think we – as an industry – have a responsibility to harness this desire and use gamification to encourage long-termism. In order to do that properly, business models need to be aligned with it, and the overall success of any investment app needs to be genuinely linked to the long-term success of the customer. If we can do this, we can get a generation to invest that otherwise wouldn’t have, and in turn, they will achieve the long term results that help them build for their future.

This article is provided for information only and does not constitute financial advice. If you require financial advice please approach an independent financial advisor authorised by the FCA. CIRCA5000 does not provide financial advice and is an execution only platform.

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