Young investors and leveraged trading

The narrative around young people investing, or rather speculating on cryptocurrencies is well documented.

Bored, furloughed teens punting on coins and fad stocks was a pandemic talking point, reporting on the GameStop saga back in February was interesting and will no doubt be viewed as a watershed moment down the line.

But why? Young people taking an active interest in companies and their finances should be lauded and while I’ll always advocate investing in funds, I can’t help but feel an affinity for their tactics.

I had my own watershed moment recently with leveraged trading and a particular stock. I keep a small pool of money away from my stocks and shares ISA to dabble in a few stocks I’m bullish on.

Nvidia is one such company, it is popular among managers and traders alike for its innovative technology and expansion into AI.

I thought why not up my risk level a bit more? It’s a company I like and the share price over the long-term, in my opinion, is only going one way.

Leverage Shares have a +3x Long Nvidia ETP, quite simply if it goes up 1% you make 3%. The same is the case in reverse – down 1% and you’re down 3%. It can give that extra level of exposure you’re after.

Unfortunately, however, I missed the boat. While it was sitting in my HL watchlist, Nvidia’s share price exploded and is currently up 211% from the time I started ‘watching.’

That could’ve been a nice little play, but it wasn’t to be. Who needs more money around Christmas anyway?

I tend to stay away from buying the dip or trying to time the market as it is notoriously difficult and I’m no expert. Especially for a product like this, timing is everything.

Leverage Shares offer this kind of long and short exposure to a whole host of big names, including Netflix, Microsoft, and Royal Dutch Shell.

But it’s a dangerous game, which is why I always keep it away from my main account and only risk what I can afford to lose.

Leverage Shares also offer fractional trading, or 1:1 exposure to large-cap stocks.

Simply put, when you buy a fraction of a share, you experience the same percentage gains and losses as an investor with a full share. So rather than pay $3000 for a share in Google, you would pay $5.

While this is not for everyone, it offers investors a bit more flexibility to play these stocks as they wish, whether it’s a long term buy-and-hold or for day trading.

The products are physically backed too, $1 million invested in a product means that money is invested in the underlying shares, without the use of swaps or derivatives.

When I spoke to Oktay Kavrak at Leverage Shares, he said two thirds of young investors invest more in single stocks and are “trying to be their own portfolio managers.”

He added: “They want to take a hands-on approach in order to build their own portfolio and manage it actively.”

As I say, this isn’t a strategy that works for everyone but as a tool for getting young people into investing, I think it could be quite powerful.

Leveraged and long ETPs aside, fractional trading can be an accessible way to start investing in single stocks.

Crypto investing is speculative and exciting, so the key is to match that level of excitement, but crucially with companies that are backed by solid, predictable fundamentals.

I think this could then be a useful transition into investing in funds and investment trusts.

If they like trading individual stocks, why not invest in a portfolio of similar stocks under one tradable umbrella?

Or even better, noticing a particular theme in the companies they’re buying and playing that theme via a closed-ended investment trust?

Maybe this is fanciful, but as young people accumulate wealth by trading in these kinds of products, naturally they will want a less risky vehicle in which to put this new capital in and the fund industry should be there to welcome them with open arms.

For now, I’ll keep Nvidia x3 on my watchlist, maybe I’ll take a punt next year?

To read yesterday’s WI Daily on Black Friday, click here