Investors cash in on cut-price trading via platforms such as eToro

Retail investors who rushed to the sharemarket to take advantage of its biggest plunge in 30 years are now taking profits.

Actor Alec Baldwin has been spruiking trading platform eToro. Picture: YouTube

Retail investors who rushed to the sharemarket to take advantage of its biggest plunge in 30 years are now taking profits, broadening their exposures and looking offshore for the next big opportunity.

Record numbers of investors have flocked to trading platforms since the February market sell-off, with new entrants still opening ­accounts at well above average levels 10 months later, even as ­sharemarkets have recovered most of their losses, and some are already trading at record highs.

Social trading platform eToro, which began offering commission-free trading in May, recorded a 480 per cent rise in new Australian registered users between January and November compared to the same period last year.

Instead of buying into the big established names, eToro users ­increasingly are chasing up-and-coming stocks such as Chinese electric-vehicle maker Nio or software company Palantir, according to Australian managing director Robert Francis.

“Millennials in particular are our target audience, and they are very tech savvy. They’re looking for what’s coming out, such as the Palantir IPO, or Nio, for those who think they missed the boat with Tesla,” Mr Francis told The Australian. “Once people start following these particular stocks, and then they start seeing the momentum rise, that’s when we see them jump in.

“We saw the same thing with Tesla. Tesla went up to levels where most investors were saying, ‘I’m not going to jump into that, that’s way too high’. The retail ­investors jumped in and made a fortune.”

The rapid rise of eToro has not gone unnoticed by regulators. After it introduced commission-free trading in Australia in May, which Mr Francis said was a loss-making exercise designed to attract investors to its website in the hope of converting them to other products, its registered users doubled within a month.

Robert Francis, the Australian managing director of eToro.

The Australian Securities & Investments Commission is most interested in eToro’s copytrading function, which allows users to copy the trades made by its 1500 best-performing traders.

“We’ve been allowed to offer this product from the very beginning, at their consent, but they’re now looking to say, ‘OK, well, we need to know a little more about it. And we want to find out about the client experience and the popular investors’,” Mr Francis said.

“They asked us about it before and we satisfied the team that was in place then, but now there are new people in. And frankly, ASIC was tarred and feathered recently, so they’re now taking a very close look at everybody.”

ASIC was one of the very few regulators in the world “not very open to communication with the people they regulate”, he said.

Alongside eToro, platforms such as CommSec and nabtrade, among others, have also experienced phenomenal growth this year.

New accounts at CommSec topped 400,000 in the 2020 fiscal year, while CommSec Pocket, which allows investors to trade with as little as $50, has gained 150,000 users since it launched in July last year.

“We’ve seen record retail investor activity since March. From February to June, blue chip stocks were our most traded overall,” CommSec executive general manager Richard Burns said.

“There’s been a focus on stocks that historically had a reasonable dividend yield and the banking sector, Wesfarmers, Telstra and Woodside have all been popular.

“From June, there has been increased trading in travel, ‘buy now pay later’ and medical companies in light of a potential vaccine.”

For nabtrade, which in March was opening new accounts at five times its average rate, the strong bias towards buying that was prevalent earlier in the year has moderated as more investors, particularly those who have been around for a while, have taken profits.

Banks and BNPL stocks were among the companies that had been hit by the profit takers, said Gemma Dale, nabtrade’s director of investor behaviour.