According to reports released from E*TRADE and TDAmeritrade the retail investment sector experienced a big jump in daily trade volume in the first quarter of this year. Both companies reported that daily trades have increased about 30% a day since the first quarter of last year.(WSJ – Mom and Pop Set Up There Trading) Much of the trade growth can be attributed to last year’s strong returns in the market, more mobile trading technology, lack of alternatives to stocks in a period of historically low interest rates, and increased volatility. As retail trades have increased significantly, the broader market has showed decreased volume. This shows that retail investors are becoming a larger fraction of the overall trading in the market.
This year’s growth has diverged from previous trends of decreased retail investment, as retail investors had been diverting their investments to institutional money managers, as they switched from personal stock selection to mutual funds and ETFs. So even though many investors are still switching to ETF and mutual funds, why is the trade volume increasing? I personally believe that this trend is a reflection of the reemergence of day trading. Many retail day traders got smoked in 2008 and after the past 5 years of a bull market, I think day traders are beginning to reemerge.
Besides the positive market environment, I think another factor that has contributed to the reemergence of retail day traders is the exorbitant amount of free information that has become available through social media, such as Twitter and YouTube. With all this readily available information it has become easier for novice traders to learn how to trade. The Wall Street Journal talked to a Gabe Mercer a 22 year old student in North Carolina who said “he stumbled onto the stock market in March while reading Twitter and watching YouTube videos.”
I personally have witnessed similar stories to this as a couple of my roommates began to trade stocks because of information they picked up off from Reddit and Twitter. Now my friends will be on their phones and tablets all day checking stocks and executing trades.
I personally believe that this trend of increased retail investing will continue as commission free trading platforms, such as Robinhood, emerges. Once the high trade execution barrier is removed, I can foresee many young kids sitting on their phones in class day trading with $500 accounts. This will inevitably increase the volume of retail investing even more.