Retail traders are a lonely lot. Most, if not all, trade from a small office located in their homes. Some even trade part-time from their cellphones while trying to work other jobs. Many come to trading with little to no knowledge and zero experience. All have dreams of making big, easy money working only a few hours a day. Does any of this sound familiar to you? If so, sooner or later, you'll find yourself connecting with other like-minded traders through the latest rage among retail traders. It's called the online trading chatroom.
What exactly is an online trading chatroom? The best way to describe them is to dive headfirst into where you can find most of them. There's a platform that gamers have been using for years called Discord™. The gamers use this platform to set up chatrooms that allow them to communicate with each other about the games they play. Discord allows a group of gamers to set up a chatroom with unlimited members for free. Within the chatroom, the managers can create individual channels that are private and public for specific topics like rules of the game, strategies, contests, etc.
Many retail traders are also gamers so it shouldn't surprise anyone to know these traders set up chatrooms to discuss retail trading. The premise is the same. Like-minded traders gather in these chatrooms to discuss anything and everything related to the markets. The managers have also discovered a way to monetize these chatrooms and a brand new industry has formed and opportunities for scams have arisen.
Most of these chats can be divided into day trading, investing, and cryptocurrency. All of them offer a free chat. The free chat is like a town square where everyone gathers to meet each other and talk about things in general. Like most town squares, you'll find a variety of experiences too. Some of the members may be very experienced traders. Most are not. Most new members are looking for advice on which broker to choose, what platform to use, what stock is the best one to make money on, etc. All get around SEC regulations by stating they don't offer advice, only education.
These town squares can vary in size too. Some are very small with only a handful of members and others may have tens of thousands of members. Once you're in the town square, you'll quickly learn what products and services the chatroom may offer. Some of these may be offered for free and some can turn out to be very costly. Newcomers are encouraged to take free courses to teach them how to maximize their profits. Many chatrooms will even give away daily or weekly watchlists.
A watchlist is a list of active stocks that have the potential to make a trader money. These lists are compiled using scanners, analysis, and recommendations from others. Above the basic courses, which teach definitions and maybe basic strategies, these chatrooms offer memberships that include access to special strategies guaranteed to make you money. They offer paid mentorships and more in-depth courses. Some package these offerings into elaborate university-styled courses. Some of the better chatrooms will offer a special program, like a trading indicator that can be overlayed onto the more common trading platforms. These indicators simplify when a trader is to enter and exit a trade. Still, other chatrooms offer live trading where members are allowed to watch and listen to an experienced trader as that trader makes their trades in real-time.
As was mentioned earlier, these chatrooms vary in price. Some are free. Some can cost as much as $250US per month. There may additional fees for added products and services too. For instance, depending on the chatroom, courses can vary from $49 upwards of $2500US and more. Depending on the special strategy or indicator offered, the chatroom may charge an additional fee of $99 upwards of $2000US and some are monthly recurring subscriptions. So it is easy to see, chatrooms can be very expensive.
Now that we know what trading chatrooms are, let's talk about scams before we get into why you may or may not need them. Let's start with a story to show you just how easy it is to get swept up into a scam. Most of these chatrooms promote themselves on social media and most prefer to use Instagram™. They pretty much follow the same marketing model. They post notices of their winnings followed by screenshots of success stories by some of their chatroom members who traded the stocks on their watchlist. They promise you the same success and give you a link to their free chatroom. The goal of their social media marketing is to get you to follow them. This is where their drip marketing begins.
Once you sign up, you'll find these chats fall into one of two categories, the owner either has 40+ years of trading experience and wants to share that experience with you, or the owner has only been at it for 2 years, and has discovered the secret to making money. The owners and a couple of well-placed schills promote a lifestyle of wealth and riches. The lifestyle they show is all real. The problem is the wealth generated doesn't always come from their trading success. It mostly comes from the products and services promoted in the chatroom. Yes, they sometimes trade too and yes, they sometimes make a profit trading. But it's not because they have a secret or unknown way of trading. It's usually because of an unusual amount of risk they take that pays off, sometimes. More on this later.
Before you decide to join a chatroom, I suggest you drop into their free chat and see how they handle new members or less experienced members. If the chat is so crowded the new members are largely ignored, ridiculed, or told to buy a paid membership, I would avoid that chat. I would also avoid any chats where any type of criticism is censored. (Yes, there are chats that will censor criticism and ban the critic.)
I mentioned unusual risk above. As a trader, common sense dictates that you should never risk more than you can afford to lose in a trade. That equates to roughly 5% of your total trading capital for the average retail trader. The reason why is to prevent you from blowing up your account on a single loss and having to add more money to keep trading. If you consistently stick to this rule, statistically you'll make money in the long run.
Some of these chatroom owners in order to prove their methods work will risk considerably more. Here's how the scam works. They will find a stock that is somewhat liquid meaning people are trading it. They will take a position out of the money (OTM) if they are trading options. The position will be unusually larger than it should be. They will then promote this stock, giving the entry/exit price to their chatroom. When those in the chatroom start buying, the price of the stock will increase and the owner will sell immediately pocketing a tidy profit and leaving the others holding an empty bag.
The owner can then proclaim how savvy he is and how his methods work, and if questioned, he and his schills will claim you are slow or late or need one of their paid courses to learn how to trade faster. This is just one of many scams ran by chatrooms so be very aware of what you're getting into.
The following rule should guide every trading decision you ever make. This includes decisions you make about adding new products and services, including chatrooms. The rule is simple. Protect your trading capital at all costs. That means every dollar you can save to trade, is a dollar you can use to make money with. If you are spending your money on services, coaching, chatrooms, and other products that aren't giving you a minimum of a 100% return, then you are throwing away your money. So always, protect your trading capital.
Retail trading is one of the loneliest things a person can do. So it is natural to want to gravitate to and chat with others who have the same interests. Many reputable chatrooms exist and encourage just that. Your job will be to sort them out. Some things to look for are smaller chats, usually no more than a couple of hundred members, few if any paid courses, chats are filled with lots of content that are trading specifically with education in mind and/or they are filled with normal people just chatting. Good luck and remember, protect your trading capital.