—TechRound does not recommend or endorse any investment of financial advice. All article and website content is purely informational—
Since the start of the pandemic, more people have been getting into online trading without fully understanding the risks. Most young people have started trading online for the first time in 2020, and they use smartphones as their preferred device for trading.
Since most of the new traders don’t have the luxury of spending their whole day sitting in front of a computer like professional traders, so, they trade via their smartphones, which is not the best way to analyse & trade the markets.
Karan from Safe Forex Brokers UK points out that most new-age trading apps encourage traders to trade more without fully understanding the risks or the underlying instruments which they are trading. There are elements of gamification in their app design to encourage easy buying & selling.
Trading via a smartphone has some pros & should be used in some cases but there are a lot more risks. We will explore these in this topic.
How is Trading Done Via Smartphone?
Most of the online brokers offer their apps which you can easily download from the app store & Google Play. It is very easy to install trading app from brokers and get started. But to start online trading via your smartphone, you need to open a trading account with an FCA licensed broker and then go to your phone’s app store and download the broker’s mobile App.
Once you register and fill out all the online paperwork such as means of ID, proof of address etc., your login details should be sent to your email address. After this, you can fund your account with the minimum deposit and start trading.
What Can You trade on Your Smartphone?
Almost all the brokerage apps now allow you to trade a wide range of markets from their apps. Here are some of the instruments that you can trade.
#1. Stocks
With most of the trading apps in UK, you can trade stocks of different Companies from around the world. The variety of Stock available to choose from may depend on the broker you use. For example, a popular online CFD & copy trading broker eToro lets you choose from more than 2,000 stocks of different companies listed on 17 Stock exchanges.
#2. Currencies
From your smartphone you can trade different currency pairs using your brokers App.
The forex market is fast paced and is very volatile so trading from your smartphone grants you the convenience of being connected to the market at all times. According the Bank of International Settlement (BIS) survey, the UK accounts for about 43% of forex turnover globally. A sizeable number of retail forex traders in the U.K. do so from their smartphones.
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One popular way of trading currencies among retail day traders is trading currencies as a Contract for Difference (CFD). A currency CFD is a contract between two parties to pay the difference in the price of a currency pair as at when the contract is signed and when it is liquidated without actually owning the currency. In short it is an agreement between you (trader) and the broker, to settle the difference of your open & closing price in cash.
Currency CFDs enable a trader to speculate and profit from the rise or fall in prices of a currency.
#3. Commodities
You can also trade Commodities such as Crude oil, Gold, Silver, Copper, platinum, Natural Gas, Wheat, Cocoa etc. One of the ways this works is to buy or sell futures contracts for the commodity on an exchange.
A commodities futures contract is an agreement between two people to buy or sell a predefined quantity of a commodity at a predefined price and predefined future date.
Let us assume you enter into a crude oil futures contract that obliges you to buy 100,000 barrels of crude oil at $104 per barrel in three months. Upon maturity you don’t need to take physical delivery of the crude oil. You simply enter into a new contract to sell the 100,000 barrels of crude oil at the spot price. If the spot price is higher, you make a profit and if lower, a loss.
Online brokers offer crude oil and Nickel futures contracts for sale on their mobile App.
#4. Exchange Traded Funds (ETFs)
ETFs are a fund that tracks the performance of a benchmark index, Commodity or sector.
When you buy shares of an ETF you gain exposure to what it tracks. For example, buying into an ETF that tracks the FTSE100 means you gain exposure to the 100 most capitalized companies listed on the London stock exchange. Online brokers allow you to trade in ETFs like the SPDR S&P 500 which tracks the S&P 500 index. They also allow you trade ETFs like SPDR Gold which tracks the performance of companies in the Gold industry.
What are the Potential Advantages and Risks of Trading With Your Smartphone?
#1 Notifications
When your trading App is on your smartphone you hear every notification as soon as it drops. While using a desktop or laptop you could be away when the notification drops. The notification could be a stop order, take profit etc. and not attending to it on time could cause you to lose money.
#2 Trading convenience
When you trade on your smartphone you can trade anytime, anyplace.
If your trading system is set up at your home, lots of unforeseen circumstances like bad weather, traffic, etc. can keep you from getting home on time. Having access to your smartphone, and the ability to trade on your smartphone means you are not limited by these circumstances and you can seize opportunities as they come, or close a position when required.
Risks of Smartphone Trading
#1 Limited Screen Size
Retail Traders always use charts or technical analysis to try to monitor price action and predict the direction the market will move in before placing their trade.
The screen of a smartphone is not big enough to display these charts properly and clearly. You stand the risk of making human errors while reading the charts and this could affect your trading decisions. As a trader you may also need multiple screens to track different charts simultaneously and a smartphone screen is too small to accommodate different charts at the same time.
#2 Input error
When keying in orders and filling in contract sizes, you could key in the wrong figure since the smartphone keypad is so small. Sometimes you could mistakenly click on the buy button and end up buying when you don’t need to.
#3 Indicators
While trading you need all the help you can get and indicators come in handy. For example, important indicators such as the moving average indicator enable you to understand the course of a price trend.
Setting up multiple indicators on a smartphone is more time consuming than it is on a computer. Also, this would cause a lot of clutter on a small screen. While it could take you less than a minute to set up an indicator on a computer, and even load your template, it could take about five minutes to do so on a smartphone. Setting up indicators is an enormous real-time processing demand and can cause the smartphone’s CPU to overheat.
#4 Distractions
Your smartphone houses several other Apps and is also a means of communication. An incoming call can cut off your data and delay trade execution and by the time you are through a trade opportunity may have slipped by.
#5 Overtrading
Trading via a smartphone encourages traders to trade more.
Trading from your smartphone may cause you to want to take trades you shouldn’t necessarily take. This is because you have easy access to the trading platform so you might want to trade to kill boredom, or to recover back lost money.
The psychological aspect of trading can make one keep on trading so as to make up for losses he or she has recorded. Professional traders can shut down and go away from the computer when a trade does not go as planned, but with a smartphone you carry it with you and may be tempted to keep on trading.
#6 Not Understanding the Underlying Instruments Involved
Most of the online brokers that are popular in the UK offer CFD trading, and other forms of derivatives. CFDs are complex instruments which also involve leverage. You don’t own any underlying asset in CFD trading, and are only speculating on the value of an asset.
The risks are magnified when you use leverage. Most traders don’t really understand the instruments they are trading, and they are only buying & selling because it is very easy for them to trade due to easy access.
Don’t Trade with your Smartphone
Using your smartphone is good for accessing the markets on the go to get information about the currency price, or to view your trading positions that are held for weeks or months. But it is not for active trading, and only encourages you to trade more & take on more risks.
Smartphones should only be viewed as one of the devices that can help in managing and accessing your broker, but it is not a device for active trading. Also, as a beginner you should learn about the markets on a computer or a laptop so as to be able to look at different charts, markets at the same time, read various e-books, and hone your skills.
If you are an intraday trader or a scalper, it’s even more important to trade from your computer. This is because intraday traders generally view smaller timeframe charts, which need to load quickly and you need to do all your comparison simultaneously.
It is not possible to view multiple charts on a small screen. Also, loading indicators alone on a smart phone could take minutes, so using a smartphone is simply not convenient for this and can cause you to lose money trading.
—TechRound does not recommend or endorse any investment of financial advice. All article and website content is purely informational—