Blog Post The Boom of Retail Trading

Jon Wage Jon Wage

Jon Wage

U.S. stocks have experienced a steady increase in trading volumes over the past two years, with volume consistently topping 10 billion shares a day. Retail investors conduct a greater portion of trading. An estimated 20 million novice traders have started trading in the market over the last two years. Their decisions, behaviours and market sentiment can only mean investment opportunities.

Retail Traders Moving Markets

We are all aware that the COVID-19 pandemic forever changed people's lives and the economy. But have these changes also resulted in permanent shifts in investing behaviour?

A common question posed by market veterans since 2021, as young consumers, who received stimulus checks but lacked entertainment due to pandemic mobility restrictions, bought single stocks of GameStop (GME) and AMC Entertainment (AMC) that shook the investment world.

A group of retail traders on the social media platform Reddit devised a coordinated attack on hedge funds shorting the GME and AMC stock. Some individuals became millionaires overnight when the two meme stocks skyrocketed to spectacular highs.

The rise of retail traders, who have focused their interest on a few corporate names, does not appear to have affected the high-net-worth investors. Nevertheless, retail investors have shown professional, institutional traders that they can be a force to be reckoned with when it comes to single-stock trading. By executing sophisticated tactical trading strategies, they can intentionally hike up hedge fund positions, pushing the stock price well beyond its intrinsic value.

Global Phenomenon

From South Korea to Norway, stock trading clubs, messaging groups, chat forums, and even "rooms" on audio and social networking site Clubhouse are mushrooming worldwide. Although, the US seems to be the epicentre of this stock market earthquake. About 59 million Americans had accounts with one of the seven largest brokers in 2019. Since then, that number has risen to 95 million, as 17 million new accounts were opened in 2020 and 20 million were opened in 2021. Trading flows suggest an almighty spike as well. Retail trading volumes increased from a quarter to a third in early 2020, peaking at over 40% in the first quarter of 2021.

The active retail trader, then, has clearly become a significant force. They will likely remain in this position as the rise was attributed to structural changes in access to trading rather than a passing pandemic fad.

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