Using apps to work the stock market from home

By  | 

GREENVILLE, NC (WITN) - When it comes to managing money, smartphone and tablet apps have made life incredibly simple.

The same can be said for apps that let users elbow into the high stakes world of Wall Street stock trading from the comfort of home.

Pop culture and movies have long made the idea of betting on the stock market and striking it big an enticing one.

However, one expert with ECU's College of Business says even the best investors who engage in active trading tend to reduce their returns.

Professor Scott Below says the stock market is "a place where companies can raise money to expand their businesses...build more factories...a strong stock market is necessary for a strong economy. If you're going to have an economy that can build companies and grow the gdp and create jobs -- you need companies to have easy access to capital."

Apps like "Robinhood" sell themselves as stock market trading for the everyday person and make it easy to link your bank account to start trading.

Below, however, says users should be well aware of how these app companies make their money.

"The companies -- the brokerage firms that produce these apps -- they make money based on you trading -- and so they are trying to encourage you to trade," he said.

Professor Below says the ask spread can chip away at the returns of active traders, especially if the stock you paid for drops in value.

"There's going to be a bid price which might be 20 dollars -- and an ask price 20 dollars and 25 cents -- so if you simultaneously bought and sold the same shares of stock you'd lose 25 cents in that bid ask spread -- and that spread goes to the market makers -- the people who provide liquidity to the market," Below said.

Over the last 30 years, Below says the average individual investor buying stock in the S&P has made just over 3.79% per year.

"The other thing that's concerning about the apps is -- stock trading -- options trading -- futures trading -- all those types of things -- are very much like gambling -- it's a speculative activity. And so if you have an addictive personality it can get you into a lot of trouble financially -- and you can turn a retirement nest egg into a relatively short period of time if you're not careful and don't know what you're doing," he said.

Below's advice is to find a quality stock by doing your research. Invest in it and let it grow instead of jumping around trying to catch the next rocket stock.

He said," even the best investors out there active trading tend to reduce their returns -- individual investors trying to do it on their own have even less of a chance."