How teenage traders are turning their pocket money into profits

Advait Arya, a high school student in Abu Dhabi, started trading in the stock market with Dh8,000 last year to keep himself occupied during the summer break and Covid-19-induced movement restrictions. It was a natural progression for the teenager to start trading because most of his family members also dabble in stocks and the share market was often the topic of conversation during dinner, he says. “I saved Dh8,000 across four to five years using gift money from my relatives, parents and friends. My parents offered to give me money for trading, but I did not want to put their money at stake,” Advait, 16, says. Although his father taught him the fundamentals of trading, the teenager used Investopedia to understand concepts and watched videos by YouTuber Charlie Chang to understand the stock market and which stocks to watch out for each month. A new wave of young investors emerged during the Covid-19 pandemic, thanks to low-fee mobile trading apps, such as Robinhood and eToro, and social media platforms. Financial technology apps for youths raised $344 million in ﬁnancing last year, up from $98m in 2019, according to Crunchbase . About 45 per cent of teenagers polled between April and May this year said they were more interested in investing because of US video game retailer GameStop, according to a Wells Fargo survey in June. “We have seen an increase in interest among teens to start trading shortly after the Covid-19 pandemic,” according to Ramzi Khleif, general manager of Mena at digital wealth manager StashAway. “This started when trading apps allowed teens to start investing on their platforms using custodian accounts and their parent’s credit cards," Mr Khleif says. "Social media also played a big role by disseminating news about GameStop and the cryptocurrency hype. This drove teenagers to read and educate themselves on finance.” Teenage traders were inspired by YouTube videos on financial independence and TikTok stories of young millionaires, says Mark Chahwan, co-founder and chief executive of robo-advisory Sarwa. “They use technology on a daily basis for everyday needs. They believe in these industries and these companies as long-term investments and want to invest in their future. They also read and hear the stories of investment legends like Warren Buffett and Peter Lynch. Ultimately, you will see teens investing in industries and companies that they feel align with their values,” Mr Chahwan says. Advait uses eTtoro as his primary stock trading platform, which offers insights into hotspot stocks and allows users to replicate trades of successful traders. However, he advises novice traders to start with a demo account. “By doing so, you can learn how to avoid mistakes when you deal with real money. Also, research companies that you plan to invest in. Do not invest blindly,” he says. Most trading apps do not allow someone under 18 to open an account, while some apps even restrict it up to age 21, Mr Khleif says. If a teenager is below 18, they can open a custodial account with their parents, which allows them to be exposed to the market while being supervised, he says. “The earlier you start to teach your kids, have them ask questions and make mistakes in a supervised and safe environment, the better it is,” Mr Chahwan says. “Money skills are one of the greatest gifts parents can give their children in today’s world.” Leaving teenagers unsupervised while trading can lead them to take more risk and invest in asset classes they do not have enough knowledge about, Mr Khleif says. It is important for parents to supervise their children while investing and teach them the importance of risk tolerance, risk appetite and the timetable of their investments, he says. Advait makes safe, long-term investments in companies such as Amazon, Apple, Google and Facebook. He recently invested in US video game company Electronic Arts because “it is launching next generation technology that could potentially revolutionise the video game industry”. “I don’t invest in volatile companies because that entails a lot of time to do good research. I am short of time now because of my high school work,” Advait says. He plans to take a gap year after Grade 12 to be more active on the stock market. Advait plans to adopt a more risky investment strategy once he starts earning money. However, he admits to having lost money trading in Bitcoin when it was worth about $55,000. He also lost money after investing in shares of US healthcare company Baxter International. The teenager, who aspires to become either an entrepreneur or investment banker, has more than tripled his original Dh8,000 to Dh30,000 in the span of a year. He uses his profits to fund his non-profit organisation Defy, which provides food supplies and other resources to underprivileged people in five countries. Experts cite a number of factors responsible for the change in attitude among teenagers towards trading and stock markets, which was perceived as “mundane” until last year. Acronyms travel faster among teenagers, according to Vijay Valecha, chief investment officer at Century Financial. “Words like Fomo [fear of missing out] and FUD [fear, uncertainty and doubt] being associated with the markets have immediately caught the attention of minors. Fomo plays a major role in the herd effect that has caught on among young retail investors," he says. Social media has also had a big effect on teenagers. Nowadays, trends on TikTok are not only limited to travel, memes and lifestyle. Hashtags such as #fintok for videos that provide financial advice have a big audience lately, Mr Valecha says. Youths are also attracted to the idea of financial independence. “Teenagers are inclined to working summer jobs or part-time jobs to earn pocket money. The thought of investing money and watching it grow could be a thrill young minds want to try,” he says. Another teenager, Shloak Gehani, 16, opened demo accounts on financial platforms investing.com and eToro two years ago to practise trading after being influenced by his father and friends. He explored the stock market with his father’s help and did his own research as well. The Dubai-based grade 12 student now trades live with HDFC Securities on his father’s account and under his guidance because his age does not permit live trading. “My father offered me a one-time amount of Dh10,000 leverage to play with in stocks. He allows me to trade in a few stocks and oversees it,” Shloak says. The teenager has also invested in Amazon and Google shares in the US and Tata Consultancy Services and Dixon Technologies in India. It is important to start early and make mistakes early, says Shloak, who reinvests his profits in the stock market. “I stick to the process before investing in any stock and don’t get swayed by market hype. I read news and do my research, review the company’s finances, whether it is profit or loss-making, look at the technicals and then pick the stocks,” he says. When it comes to learning about stock trading or investing, the earlier you start, the better, market experts say. Most schools and universities do not offer personal finance lessons as part of their curriculum, so it is imperative for parents to guide their children from a young age to manage their allowances the right way, Mr Khleif says. “There are [several] websites that can help teenagers learn more about investing such as TeenVestor.com or YoungAndTheInvested.com,” he says. Teenagers can benefit from the power of compounding if they start investing early, Mr Chahwan says. Imagine you invest $1,000, for instance. One year from now, you earn 10 per cent or $100. You now have your $1,000 principal plus $100 profit. So, you have a total of $1,100, he says. You now have a larger principal than at the start and, rather than withdrawing your profit, you reinvest all $1,100. If the stock returns 10 per cent in year two, you will earn a $110 profit, he says. “The magic of compound interest lies in reinvesting returns [interest, dividends, capital growth]. It doesn’t matter if you put $100 or $100,000, there is no amount too small. What is important is getting into the habit of putting aside money. Compound interest will then give you a greater return over time. Imagine what you can do if you start as a teen,” Mr Chahwan says.