trading stocks during pandemic

Why More People Have Been Trading Stocks During The Pandemic

When the coronavirus pandemic first hit the world early in 2020, the stock market inevitably took a hit. Share prices plummeted as the market experienced one of its fastest and most drastic devaluations ever.

Few then would have predicted that as the pandemic dragged on, millions of new investors would begin trading, pushing a market recovery that was as dramatic and impressive as its fall had been catastrophic. But that’s exactly what happened, as unprecedented circumstances led to equally unprecedented trends in the financial trading world.

Rapid recovery

As the world went into lockdown and the economy tumbled, so the stock market crashed. That much, at least, was predictable. But while the economy’s recovery has been slow and fitful, with many businesses going bust and millions unemployed, the recovery of the stock market was far more rapid and soon led to record-breaking highs.

The reason was, as many experts had previously theorized, that market conditions are based less on the current economic situation and more about feelings for the future. The pandemic proved that the stock market is able to thrive independent of a struggling economy, so long as there is enough optimism about the way ahead.

As vaccines were developed and economies around the world started to get back to normal, so investors began buying based on a brighter future to come, even though present conditions were still uncertain.

New investors

Meanwhile, a new breed of investors was entering the market in large numbers. Trading platforms saw a record amount of new activity in the first quarter of 2020, which no doubt aided the market’s recovery and, in turn, encouraged more first-time investors to come aboard.

The basic reasons weren’t hard to see. Suddenly millions of people were stuck at home, temporarily or permanently out of work, staring at their computer screens. They had time on their hands and a significant shortfall in their income, and they were being bombarded with online ads encouraging them to try day trading as a way to make some extra cash. A huge amount decided to give it a go.

Looking to the future

Many of the new day traders are chasing short-term gains, but experts worry that without knowledge and experience, they may lose significant amounts in the long run. Looking to the future is the business of experienced investors like Buckley Ratchford, who specializes in private equity, distressed and private credit and venture capital transactions. The sensible thing may be to look to those companies that will do well as we come out of pandemic, such as retail, entertainment and hospitality.

Swings and roundabouts

The rapid fall and rise of the market also encouraged many first-time investors to buy in, as they saw prices rising rapidly across the board. Even when the market stabilized, there would often be dramatic swings and market corrections that canny day traders could make a quick profit on.

In addition, the pandemic was such an unexpected event that many of the usual rules for trading in a recession were turned around.

Conventional retail took a hit, while online retail soared. Big tech, from Amazon to Tesla, continued to do extremely well, but previously modest concerns like Zoom also moved to center stage. Ordinary people looked around, saw what sectors and firms were likely to do well in a locked-down world, and bought shares in them.

The crazy money

Another aspect of stock market trading during the pandemic that has recently been the subject of media attention is one that involves seemingly random investments driven largely by social media hype. Bored, young, inexperienced day traders have been buying shares in recently bankrupted companies like Hertz and JC Penney, going completely against prevailing economic sentiment.

These shares can be bought cheap, for obvious reasons: they are worthless, and their real value is never going to rise. However, if enough people buy them, driven by the social media hype, then their market value will temporarily rise, and those who buy early and sell quickly in large amounts may make a decent profit. Others, of course, may move too slowly and find they are stuck with a lot of worthless stock they’ll never be able to shift.

A similar example occurred when internet investors revived Dogecoin, a meme-driven cryptocurrency created in 2013 as a joke. The first spike in Dogecoin came in July 2020, when TikTok users pushed the value of the moribund currency up to $1. Then, in January 2021, Reddit users pushed up its value 800% in just 24 hours, encouraged by celebrity comments on Twitter.

The bottom line

Day trading can be fun and profitable. The appeal, if you’re stuck at home with time on your hands and short of money, is easy to see. But successful trading requires capital, discipline, research and commitment just like any other full-time job. Moreover, those that make serious money on the stock exchange do so by thinking in the longer term.

Many of those tempted to try trading during the pandemic will not stay the course. But of those that do, some will discover a new, significant income stream.

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