BBI of Chicago
Popularization of day-trade and its “Traders” on social networks
By: Gino Felipe Santoro.
With globalization becoming a part of our daily lives and the world being within our reach through a mobile phone, it is not a surprise that investment is doing the same. Today, with the availability and freedom given by brokers to their clients to operate wherever they are, day-trade gained support from “normal” people, who are not investors by trade.
However, right when it became easier to invest, the information on how to do so became more confusing because of several social media “traders” who guarantee astronomic gains. We know that investments of any kind are speculation, and therefore there is no perfect formula for gaining money in day-trade (JUNIOR, 2019).
Even so, human beings are not entirely rational beings, and our financial system is represented by our behavioral ways, leaving us prone to believing in things that logically wouldn’t make sense. In 2020, Chague and Giovannetti showed, in empirical-based research, just how difficult it is for individuals to obtain significant and constant profits from day-trading. They showed evidence that such a practice brings financial loss that only gets aggravated through repetition, economically, there is no meaning to day-trading.
But if we know there is no logical way to make money fast and easy, why do so many still try?
The Behavioral Finance and Questioning the Rational Paradigm in Finance module explains: no one decision we make in life is a hundred percent rational. Everything we do in life is influenced by our emotions, in some way, such as a memory or a momentaneous feeling (RAZUK, Ricardo, 2021). One of the possible reasons for people try to become day-traders, is the absurd financial gains that other investors had with the famous cryptocurrency, developing a feeling of loss, or even envy, in those who didn’t invest, making them fear lost an opportunity like this, again.
By the influence of these investors, small in volume but large in number, the economy has been changed, besides, investors still have one certainty: asset investment is not, and will never be, something with guaranteed earnings, revealing that what make the social media “traders” get their earnings are courses sold and views on their videos. We must always emphasize the possibility to invest with more than just emotions, but like a skill that needs training and will never be a hundred percent rational, as the theory of behavioral finance explains. It is good remember that some people really work as day-traders but studying and speculating based on information from several sources, not because someone told them the right way to operates the market.
LAPORTA, Taís. Bolsa atinge a marca de 1,5 milhão de investidores. Revista Exame. 2019. Journalistic material. Available in: https://exame.abril.com.br/mercados/bolsa-brasileira-atinge-a-marca-de-15-milhaode-investidores/. Accessed on July 3, 2021.
CHAGUE, Fernando; GIOVANNETTI, Bruno. É possível viver de day-trade em ações? Brazilian Review of Finance, v. 18, n. 3, p. 1-4, 2020.
JUNIOR, Roberto Ernani Porcher. DAY TRADE: across the statistics| DAY TRADE: do outro lado das estatisticas. arXiv preprint arXiv:1912.04274, 2019.
RAZUK, Ricardo. Introdução às Finanças Comportamentais e Questionamento do Paradigma Racional em Finanças. 2021. Module of the program: Pós-graduação - Gestão de Negócios com foco em Competências Comportamentais