social networks encourage young people to invest in risky markets

Released in 2013, the American application Robinhood (Robin Hood in French) caused a sensation in Western countries, wanting to convert “ordinary people” to personal investment. Since then, local equivalents have flourished, from Nigeria to India, to attract 20-30 year olds.

“I don’t really care about college anymore, to be honest. Now it’s markets, markets, markets”, recognizes Ishan Srivastava, a student in New Delhi, who started “trading” at the end of December.

At 20, Ishan Srivastava invests thanks to a handful of Indian applications (including Zerodha or Upstox) and aims to diversify his portfolio sufficiently to be an annuitant at 45.

In India, the investment revolution has been largely favored by the rise of electronic bank accounts, which are easy to open online and which can hold financial securities, stocks or bonds. But a similar craze for trading apps is happening in many other countries, including Nigeria.

Banks less and less interesting

Renowned for its dynamism, the economic capital Lagos is now suffering from galloping inflation of the naira, the national currency.

As a result, Nigerian youth have rushed to Trove and Risevest, local applications that provide access to American markets, seen as a way to protect their savings until the situation improves.

“I have the possibility of putting my money in the bank, but each month, this option becomes less and less interesting”, estimates Dahunsi Oyedele, 23 years old.

After losing his job as a journalist following the pandemic, Dahunsi Oyedele paid his rent for a few months by trading cryptocurrency.

And he is far from the only one to have turned to speculation during the Covid-19 crisis. The combination of mass unemployment, lockdowns, and for the lucky ones underutilized savings, has created vocations around the world.

In the United States alone, more than 10 million new investors entered the markets in the first half of 2021, says JMP Securities.

Some of them were attracted by the buzz in January around the chain of video game stores “GameStop”, whose price soared when traders on social networks ganged up on hedge funds.

And the new converts are getting younger and younger. The median age of Americans on Robinhood is 31; in India, Upstox claims that 80% of its users are 35 or younger, the same for the Nigerian application Bamboo (83%).

To further lower the barriers to entry, these applications authorize the purchase of fractions of securities, allowing for example to pay for only one part of an Amazon action rather than the entire title (more than 2,500 euros today). Finally, some offer to multiply profits (and losses) via a leverage mechanism.

Flirt with risk?

But if they democratize finance and very often promise zero commission, trading apps also soap the board of inexperienced investors, some experts are alarmed.

In the United States, the market watchdog (the SEC) is investigating whether these companies encourage transactions in an irresponsible way, via multiple reminders and by giving the impression that investing is a game.

Its British equivalent (the FCA) warned in March that young investors, many of them women and people from minorities in the UK, had the most to lose.

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