Courtesy of Pam Martens
There’s a full-blown assault occurring right now to lure young, unsophisticated investors to trade their own accounts instead of investing in low-cost passive index funds or using an investment advisor.
The enticements are the worst we have ever seen and harken back to what was occurring in the lead up to the devastating 1929 stock market crash that ushered in the Great Depression.
Consider the video advertisement shown below from stock and options trading app, Gatsby, owned by Gatsby Digital, Inc. A young black man sits unshaven in his bathrobe tapping on his mobile phone, ostensibly getting stock quotes or placing trades. A voice-over reassures him: “Of course you’re ready. You were born ready. And with Gatsby, it’s so easy. You can do it from anywhere.” Fade to the man in the bathrobe sitting on a toilet seat, ostensibly still trading his account.
On top of that type of seduction, the trading app informs customers on its website that “Gatsby allows users to earn rewards points with every trade. Customers can then redeem their rewards for gift cards at top retailers.”
According to the self-regulator, FINRA, Gatsby uses the name ViewTrade Securities, Inc. for its broker-dealer, which is based in Boca Raton, Florida, 1200 miles from Wall Street. Like the Robinhood trading app, Gatsby offers commission-free trading, then ViewTrade Securities sells its customer orders in exchange for payment-for-order-flow to high-frequency trading hedge funds that also have an affiliated market-making firm. Also, like Robinhood, one of the market-makers that ViewTrade is selling its orders to is Citadel Securities. The other major trading firms paying ViewTrade for stock order flow are Two Sigma Securities, Virtu Financial, and UBS Securities (part of the giant global bank).
As congressional hearings have recently suggested, these trading apps appear to be enticing the so-called “dumb money” from retail investors so that high-frequently traders can capture an ever-bigger share of the bid-ask spread.
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