Buckle up folks, the brokerage industry has found an entire new audience—teenagers. While most people know that anyone who is over the age of 18 can open a brokerage account quite easily, you might be surprised that the next phenomenon is the 13-17 year old market.  Yes, that trading app might now appear right next to your child’s Instagram app on their Iphone. 

Firms are Encouraging Kids to Trade Stocks

Recently, Fidelity has  announced its launch of a special  account geared to kids aged 13-to 17-year, allowing them to save,  spend ,  trade and invest with zero commission. Called the Fidelity Youth Account,  it is touted as “A brokerage account owned by teens 13 to 17 that’s built to start their investing journey. They can trade most US stocks, ETFs, and Fidelity mutual funds in their own accounts.” The app allows parents and guardians to monitor their teen’s account activity. According to Fidelity’s website:

  • Parents/guardians who currently have a Fidelity account can open this account with their 13 to 17 year old. At age 18, your teen’s account will be transitioned to a retail brokerage account for free.
  • Parents are responsible for their teen’s activity and can monitor account activity online, and through monthly statements, trade confirmations, and by viewing debit card transactions.
  • You can also set up alerts to notify you of trades, transactions, and cash management activity.

Fidelity is not the only one…….other youth-oriented trading apps are also spouting up. New startups  Greenlight Financial Technology, Stash, and M1 Finance are also seeking to attract young investors, according to Barron’s. Like at Fidelity, using Greenlight kids, with parental approval, can buy fractional shares of securities and start investing with as little as $1 with no trading fees.

Greenlight’s website states “Parents approve every trade, right from the app.”  Greenlight also touts that “the all-in-one plan teaches [kids] money management and investing fundamentals — with real money, real stocks and real-life lessons.” But, what exactly are those lessons?

Are these Apps Promoting Gamification?

While these new  trading platforms for kids spin themselves as educating young investors, some experts argue that these platforms are designed to gamify stock trading, and instead might be detrimental to teens. The SEC is looking into this new world of stock-trading apps, and examining whether they use digital cues and prompts that could be influencing their user’s investment decisions. Indeed, according to Barron’s some critics say that certain stock-trading apps look more like online games or gambling, and that their graphic designs are coercing users into making bad investment decisions. In a new release , the SEC said it was seeking public comment “related to the use of digital engagement practices by broker-dealers and investment advisors.”

The SEC may be able to use its power to review some of the underlying technology that brokerage apps use to reach customers and track their actions. These tools include things such as behavioral prompts, game-like features (commonly referred to as gamification), and other features designed to engage with retail investors on digital platforms, as well as the analytical and technological tools and methods to gather information.

Young People With No Experience are Targeted 

According to Barron’s, since the beginning of 2020, more than 20 million new brokerage accounts have been opened in the US—a record pace — expanding the investor base considerably. A large number of these new customers have never traded before. Unlike many of their parents, their gateway into the stock market is not a human broker sitting behind a desk. Instead, this new class of investors is more likely to be self-taught, and rely on social media for their advice.

There is an argument that Fidelity and Greenlight encourage parents to discuss and educate their children  on trading and the stock market. But without a real investment professional in the mix, this may have the opposite effect of parents simply allowing their kids to trade securities as a game rather than for the long-term. In any event, for the retail brokerage industry to survive, it needs to capture the interest of young people. There is no argument that this has been accomplished.

Robinhood Improperly Approved  Customers Under 21 for Options Trading 

However, many young inexperienced investors have lost big in the stock market, taking on risks that they did not understand. For example, Robinhood was sanctioned by FINRA  for approving thousands of customers for options trading when those customers did not meet the firm’s approval criteria or where their account information  contained red flags indicating that options trading was not suitable. 

HAVE YOU LOST MONEY FROM RISKY OPTIONS TRADING THAT YOU SHOULD NOT HAVE BEEN APPROVED FOR?

CONTACT US TODAY FOR A FREE CONSULTATION

Not everyone who loses money in risky options trading has a claim against their brokerage firm. However, under certain circumstances where misconduct or violations of securities laws and rules have occurred, investors may have the right to seek legal recourse. If you or a loved one have suffered investment losses as a result of an online options investment or any other type of investment fraud or broker negligence, contact the offices of Investment Fraud lawyer Melanie Cherdack for a free consultation. Because she has been in the trenches as a former Wall Street attorney, Melanie Cherdack and her team of experienced attorneys have seen just about every type of investment fraud or investment scam. While almost every investment carries a degree of uncertainty and risk, you may have been unnecessarily exposed to such risk. Former Wall Street securities attorney Melanie S. Cherdack and her team of lawyers represent individual and institutional investors who are unwitting victims of investment fraud and broker negligence. She heads up a group of attorneys who represent investors across the United States. Contact us by filling out our online contact form, or calling 844-635-1609 or 305-349-2336.