Millennials are quitting jobs to become crypto day traders. Here's the risk, reward.

Hamez Trezhnjeva became so enthralled with stocks and Dogecoin during the coronavirus pandemic last year that he decided to make day trading a full-time gig this summer.

The 27-year-old Albanian immigrant recently quit his job as a bartender at a French restaurant in Manhattan to spend more time trading on his phone. His decision was sealed when he became frustrated that his work income was just 20% of his earnings prior to being laid off from another bartending job last year.

“I kept thinking about all of the lost opportunities ... to make even more money day trading,” says Trezhnjeva, who lives with his wife, Gabrielle, in Bayonne, New Jersey. “I was going into work to make money, but I could have made at least twice that amount if I was at home spending more time investing.”

Meme mania pushes millennials, Gen Z into the stock and cryptocurrency markets

The fear of missing out (FOMO) on record-high stock prices and the boom in cryptocurrency – or digital currencies – has pushed more young Americans like Trezhnjeva to try day trading and other kinds of investing for the first time. For people who kept their jobs during last year’s COVID-19 recession and are flush with stimulus money and savings, there’s an anxiety to cash in big on everything from GameStop to cryptocurrencies.

It’s easy to see why.

The stock market has surged nearly 100% since March 2020. AMC, a struggling cinema chain, has managed to soar more than 1,490%. Robinhood, the online trading platform that catapulted AMC to new heights, also has been a market darling, shooting up more than 60% since it went public on July 29.

Meanwhile, Bitcoin more than doubled in value this spring, reaching $64,000 in April before briefly tumbling back to below $30,000.

Why young investors have COVID-induced FOMO

All these lofty values and the wealth generated by it have drawn young Americans to investing, even though they have been hit by two “once-in-a-lifetime” recessions early in their prime earning years. The ability to become rich quickl seems close at hand.

But the drive to get in on the action comes with big risks. And while the do-it-yourself spirit of day traders is understandable given frustrations with low-paying retail jobs and a distrust of big financial institutions, low levels of financial knowledge leave most Americans at risk of losing more money than they can spare when markets turn volatile or crash.

“It’s like a Las Vegas-style atmosphere where you’re gambling and things can work out in your favor," says Michael Sheldon, chief investment officer at investment adviser RDM Financial Group at Hightower. "But just as quickly they can turn against you.”

Still, most Americans aren't familiar with cryptocurrencies

It was only 17 months ago that the COVID-19 pandemic drove down financial markets 34% and sent the economy into one of the sharpest downturns since the Great Depression And while that market collapse was the shortest on record, $9.5 trillion in wealth was wiped out.

That implosion serves as a warning of what can happen to people without a financial plan or solid grounding in investing basics. And it came just 13 years after the Great Recession of 2007-2009 began, prompted by a collapse in the U.S. housing market.

Yet despite both meltdowns occurring within recent memory, many amateur investors in the U.S fall short when it comes to knowledge of finances, markets and investments, according to Wall Street regulators and financial experts.

And one of the newest and most volatile of investments is among the hottest: cryptocurrencies. They are essentially digital coins created and exchanged over a decentralized computer network where transactions are secured and verified through coding.

If Americans struggle with financial knowledge in general, it’s also true they don’t fully grasp the finer points of this asset. Roughly 60% of U.S. adults say they are "not very" or "not at all" familiar with cryptocurrencies, according to results of a Harris Poll provided exclusively to USA TODAY.

Here's how much lack of financial literacy costs Americans

More broadly, nearly two-thirds of Americans say they understand investing well, though only 20% say they understand it very well, according to Harris.

Literacy appears to correlate with income. About 40% of U.S. households with income over $100,000 say they are "very" literate, compared with only 21% of households with incomes under $50,000, Harris Poll data shows.

Lack of financial literacy and not knowing how to manage one’s personal finances cost Americans more than $415 billion in 2020, or an average of $1,634 per U.S. adult, the National Financial Educators Council estimates.

"When it comes to investing, Americans say they're sufficient, but not proficient by any stretch," says John Gerzema, CEO of The Harris Poll. "They acknowledge they're OK at it, but they haven't mastered it."

Americans think they know more about investing than they actually do

This is also a nation where most Americans believe they know more about investing than they actually do, according to data from the Financial Industry Regulatory Authority, Wall Street’s self-regulatory arm.

In a 2020 survey conducted by FINRA, 50% of investors exhibited low investing knowledge, yet their confidence in their investing capability was relatively high, with 71% of investors reporting average or higher levels of confidence in their skills.

Although most Americans may think they’re financially literate, new investors are less likely to have high levels of financial literacy compared with their more experienced counterparts, FINRA data shows. Most younger investors exhibited low levels of investing knowledge, including 57% of 18- to 29-year-olds and 53% of 30- to 44-year-olds.

Key errors young investors make

Young investors are making two pivotal mistakes while trading cryptocurrencies: Their investing time horizon is too short and they’re scooping up too many speculative assets in their portfolios that are risky, according to Yosef Bonaparte, associate professor of finance and the director of external affairs in finance at the University of Colorado Denver.

Cryptocurrencies can see wild swings within a day or even minutes, making day trading dangerous for small-time investors who lack knowledge about them.

"The everyday individual is looking at crypto assets as an investment or opportunity to build wealth," says Tyrone Ross, chief executive of Onramp Invest, which provides cryptocurrency asset-management technology for financial advisors. "But the majority of people should not be investing in them."

To be a professional trader, for instance, requires exams and a FINRA license to execute orders for a Wall Street securities or brokerage firm. The average Joe in America, however, isn't required to do that if they're day trading for themselves.

“It can work for the right person, but there are so many things that are important before you get there, like having an emergency savings, paying down debt and setting your financial goals,” Ross adds. “If you haven’t done that, you shouldn’t be trading crypto.”

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Trezhnjeva says that he's still learning the in and outs of day trading. He was attracted to cryptocurrencies because he either paid no fee or lower fees to transfer money back to his family in Europe.

He wakes up two hours before the stock market opens to prepare for his day. His wife Gabrielle, a 24-year-old leasing agent at an apartment-rental company, gets texts from him throughout the day, asking her opinion about whether to buy a particular cryptocurrency or stock.

But they are still cautious. The couple plans to hold their crypto money for the long haul to build up their nest egg and save for a home.

"We never invest more than we're willing to lose," she added.

Gabrielle has been investing for the past five years and helped push him into cryptocurrency by buying Dogecoin, a popular meme stock that was created as a joke. She predominantly uses the Robinhood and says she feels a rush of validation when she gets congratulated or sees positive emojis for her trades on the app.

“It can get addicting because it’s a sign of reward," she says. "We get gratification and it’s a big part of the gamification of investing.”