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Retail trading boom continues as app raises $80m and AJ Bell sign-ups surge

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LaToya Harding
·Contributor
·4-min read
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A Gamestop store in Munich, Germany. Photo: Alexander Pohl/NurPhoto via Getty Images
A Gamestop store in Munich, Germany. Photo: Alexander Pohl/NurPhoto via Getty Images

A retail trading frenzy caused by the onslaught of the coronavirus pandemic has boosted performance at UK stockbroker AJ Bell (AJB.L) as BUX, Europe’s fastest growing neobroker, raises $80m (£57m) from a group of top-tier investors.

Investment platform AJ reported that its customer numbers grew by a record 34,223 in the three months to 31 March, a 64% increase compared with the second quarter of the previous year.

The company’s adviser platform saw its largest ever quarterly increase in new customers, and its direct-to-consumer platform also posted record growth in customer numbers and inflows in the three months.

AJ Bell said total platform customers closed at 332,276, up 34% over the last year and 11% in the quarter amid a surge in young people joining.

It added that total net inflows in the period rose to £1.5bn ($2bn), compared with £1.3bn in 2020, as it maintained a high average customer portfolio of £79,000. Total assets under administration increased 35% to £65.2bn.

“We continue to see growing numbers of younger people joining the platform as they look to take control of their long-term financial future via pensions and ISAs,” said Andy Bell, chief executive officer at AJ Bell.

Meanwhile, the funding round at BUX, which comes as a bid to further accelerate its roll-out of zero commission investing across Europe, was led by Prosus Ventures and Tencent. Additional new investors included ABN Amro Ventures, Citius, Optiver, and Endeit Capital.

BUX recently welcomed its 500,000th customer on its platform.

READ MORE: Hargreaves Lansdown boosted by surge in young people trading stocks

It comes as thousands of people across the world have joined trading and investment platforms since the COVID-19 pandemic began. A combination of market volatility, lockdown boredom, and financial interest has lured amateur investors into playing the market — many for the first time.

Recent research in Britain estimated 400,000 new investors entered the market in 2020, injecting more than £20bn into the stock market.

For many new investors, the stock market crash caused by the pandemic in March 2020 represented an opportunity to invest at the bottom. Well-known companies’ share prices have plummeted and amateur investors do not expect it to stay that way.

This wave of amateur investment also made headlines at the start of this year as traders used Reddit forum r/WallStreetBets to coordinate “attacks” on hedge funds short-selling stocks such as GameStop (GME) and cinema chain AMC (AMC).

Amateur investors pushed the stock price of these companies up by as much as 300% and forced hedge funds to swallow billions in losses.

Broker Robinhood then temporarily barred investors from buying GameStop and other heavily shorted stocks, leaving them no choice but to either hold their position or sell. Meanwhile, hedge funds were free to trade those same stocks, without restrictions.

WATCH: Interest in 'Dogecoin much like Gamestop,' you have to be careful when shorting

READ MORE: Bank of England governor 'carefully' watching Reddit trading boom

Robinhood’s decision to halt trading led to class action lawsuits, which claimed that the trading platform rigged the market against them and in favour of the Wall Street firms.

The explosion in market value of stocks like GameStop has prompted concerns that many investors may end up losing large amounts of money when prices normalise.

It also follows new research from Charles Schwab which revealed a surge in young investors opting for high-risk assets.

Millennial and Generation Z investors in the UK are more likely to invest in cryptocurrencies (51%) than equities (25%), the report showed, with seven in 10 seeing high-risk products like cryptocurrencies as a good investment and a third having increased their cryptocurrency holding in the last quarter.

As more young people purchase speculative products, there is a fear that these investors are not diversifying their portfolios enough to mitigate risks in case cryptocurrency markets decline.

More than seven in 10 (71%) of young investors admitted they are unsure how to adapt their strategies to protect against losses in the current financial climate. A further 49% said they find it difficult making decisions about investment products.

Richard Flynn, UK managing director at Charles Schwab, said: “Digital platforms and the sheer volume of financial information available today has made it much easier for young investors to trade and cryptocurrencies seem to be the flavour of the month.

“It is important to remember that these are speculative assets that don’t fit within traditional asset allocation models, as they are neither a traditional commodity, such as gold, nor a traditional currency. While the prospective returns are tempting, investors should be aware that it is just as susceptible to supply and demand, but will not necessarily have the inherent value behind it."

WATCH: What are the risks of investing in cryptocurrency?