More than 430,000 Australians started trading last year. One expert says the trend is driven by our gambling culture and government stimulus money.

Australians love of a punt is helping drive many into the sharemarket for the first time. (Darrian Traynor, Getty Images)
  • 435,000 Australians became new traders in 2020 according to new data from Investment Trends.
  • Driving the enormous uptake into retail investing is Australia’s gambling culture and the surplus of government money available, RMIT lecturer Angel Zhong said.
  • However, just as with gambling, uneducated investors risk losing badly, she warns.
  • Visit Business Insider Australia’s homepage for more stories.

The nation’s penchant for a punt has driven plenty of Australians into the stock market to try their luck.

Stuck indoors and with Australian and global markets falling sharply in March, some 435,000 Australians waded into the market last year for the first time, according to a new report by Investment Trends.

Commenting on the report, senior finance lecturer at RMIT University Angel Zhong said there had been something of a perfect storm to draw them in.

“This is driven by a number of factors, including low interest rates, dramatic volatility in the share markets around the world, government stimulus, and the emerging low-cost trading platforms,” Zhong said.

But while the trading boom had brokers and investment platforms rubbing their hands together, there may have been other risk factors that saw Australians run headlong into the market.

“The RMIT data shows countries with larger gambling revenue prior to COVID-19 were associated with a greater increase in retail trading last year, since investors see the stock market as a substitute for gambling,” she added.

It is no wonder then that Australia, frequently listed as the world’s most active group of gamblers, has been leading the charge.

In that respect, the pandemic helped fuel the trend, as sporting competitions around the world were cancelled or postponed. Likewise, government support payments in the form of JobSeeker and JobKeeper put cash in the hands of those laid off or stood down.

All and sundry meanwhile could take out $20,000 each from their nest egg as part of the unscrutinised early access to super scheme.

“RMIT research shows around the world, countries with government stimulus payments are associated with larger increase in retail trading volume,” Zhong said, noting that it appears a good chunk of that taxpayer money was “spent on share market investing.”

Investors at risk

There are obviously no guarantees in the share market. But there are particular concerns surrounding how a sea of new investors cashed up to the teeth might fare when the current bull market does eventually dissipate.

Even those who have profited the most from the trend recognise this. CommSec, which welcomed roughly half of those new rookies, launched a new educational series off the back of concerns that few actually knew what they were doing.

At the same time CommSec’s rivals like Stake and eToro have enabled free US trading, effectively lowering the barrier to more frequent trades.

“Low-cost trading platforms further fuelled and lured young and novice investors’ entrance to the share market for the very first time,” Zhong said.

Likewise, the proliferation of speculative trades has fed the rise of online Reddit forums like r/ASX_Bets, and its American parent r/WallStreetBets. They along with other social media channels like YouTube, Facebook and TikTok, enables punters to exchange “unmoderated investment advice”, according to Zhong.

“Investors who are not financial literate are vulnerable to social trading and could incur losses in the share market,” she said.

It’s a trend that has played out over the last 12 months with financial regulator ASIC sounding the same alarm months ago.

It’s unclear however how many are actually heeding those warnings.