This article is written by Søren Beissenherz Lanng who is the founder and CEO of TickCOM.
The market for financial apps is growing rapidly, pushing financial trading to the crowd. Wealth management was in the past regarded as a niche market within financial trading, focused at attracting private potential investors and their pension.
Evening meetings with free dinner, and a presentation of wealth management, the past results of the wealth management firm. Past results and a documented performance is in many markets necessary to present wealth management offerings.
After a period of now 6 years of continuous stock rally across about all markets, those wealth management firms now have a “proof of performance”, and start to pop up like champignons in the markets – including the app market.
Who pays the price?
Stock rallies in the high investment timeframe continue till there are no more buyers, historically it is the retail investor who pay the “dinner”, being the buyer coming in at the end of the rally.
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However, this time it’s different, this time it is not a narrow segment of private pension money fueling the last “leg” in the stock rally, but the crowd spanning from any person knowing how to operate an app. The present stock rally is longer than we would normally anticipate, and could be caused by the crowd is now participating in the “dinner”.
The markets have been trading sideways now since New Year, and Gold has been sideways for 9 months. Is this a gigantic distribution we are seeing, a sector rotation coming up, or a pause till the financial apps and the crowd push the market into one leg more? Few have an answer to this question, but one thing is for sure, if the market took the stairs up, it will take the elevator down – the “impulse” will be proportional to the length and the amount of users/money participating in the rally.
Next CHF flash crash
What can we expect to see in the next market crash? Comparing with the past events, wealth management companies will go bankrupt, investors wake up and see or all is gone, or if they are lucky 80% lost. We can expect to see that funds have disappeared, people have disappeared, and management put to trial and in jail. We may expect to see open positions without a stop. We may even expect a similar scenario as the CHF flash crash, where there are no buyers in the market, only sellers.
We may expect new financial regulations, and capital requirements – perhaps even regulations as to financial apps, the steps a user has to take in order to engage a wealth management contract.
When and how this is going to happen, time and the charts will tell – we should not be fooled by bullish patterns forming on the weekly charts, usually the market gets several chances to get out of their positions, but when the past was usual, the next might not be so, especially when the crowd is part of the “dinner”.
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