The idea of a “passive income” has become a highly sought after, aspirational ideal, but most people don’t even realise what it means. Yes, it would be great to earn an additional “passive” income that involves minimal day to day interaction, but there’s one big problem with this dream: it’s also a really slow one!
Passive income is what you get when you make a long-term investment that will steadily pay out over time. It’s the intelligent, conservative way to play the markets. But the times are changing, and thanks to a number of factors propelled by the fintech revolution, active trading is starting to overtake passive trading as the new way to beat the markets. Not only does this type of trading better align with the always-connected nature of today’s society, but it’s also a much faster way to make returns.
Culture and Technology
We are now starting to see financial spending power falling into the hands of the younger generations that have been brought up online. These new generations may not have the same level of economic comforts that the Boomers had before them, but they do know how to use tech to chase their dreams.
With younger people finding it more difficult to buy homes and achieve a form of financial security that seemed to come easier in the past, these new generations are also more likely to take risks if a big profit could be waiting at the end of the ride.
When you couple this appetite for risk with the surge in accessible trading resources and platforms such as WallStreetBets, Robinhood, and Stocktwits, it is only natural that active retail traders have arrived to take down the markets.
A small monthly passive income would be great, but what if your bravery and tech-savvy could see you turn active trading into an activity that brings you the kind of money that you could only have dreamed of? YOLO!
Within this new landscape, it has been said that four key types of active investors can be identified:
Distributed Hedge funds
All the knowledge and the power used to be hoarded and shared around Wall Street. Today, the average Joe in the street can go online and access information that until recently was just not an open secret. Not only is the information now shared more democratically, but the individuals who share it can mobilize and group together to make a big splash.
Retail investors now share and group together their research, strategies, and collective balances sheets in a way that can match up with the traditional power holders. This kind of pooling together of knowledge and capital means less risk, lower barriers to entry, and the very real potential to discover alpha and transform the status quo.
Micro Trading Stars
In the history of the stock market, there have always been individuals that set themselves apart as having some innate ability to choose the right stock at the right time. Warren Buffett, George Soros, and Peter Lynch are three of the most famous old school stock pickers.
Now mere mortals can achieve a similar level of fame on a much smaller scale thanks to the rise of copy trade strategies on many of the best new online trading platforms. With the ease of access and the intuitive nature of the best platforms getting better all the time, it is these “unknown” active traders whose stock picks could be driving the trades of millions of like-minded investors in the future.
The Rise of the Geeks
Quant trading is something the big banks and hedge funds have employed in recent years to gain even more advantage over the market. Today, the rise in more accessible tools means that this algorithmic way of trying to beat the markets is now slowly building up in popularity.
The level of technical knowledge required here means this kind of trading is still mostly for the super-smart at the moment, but it’s only a question of time before this technology is leveraged even further and brought to an even wider retail base.
This is perhaps the most well-known form of active trading today, thanks to the enormous impact caused by the GameStop movement. The power for communities to completely disrupt the apple cart is clearly a thing, and it is this kind of movement that will grow even stronger in the coming years.
Once operating in isolation and poorly connected, retail traders can now form huge communities that have the power to ignore the broader market and focus on the fundamentals of one specific company. This method worked massively for GameStop, and we will see much more of this form of active trading in the future.