- Retail investors have accounted for as much as 25% of the stock market’s activity amid coronavirus-driven volatility, Joe Mecane, the head of execution services at Citadel Securities, said in an interview on Bloomberg TV on Thursday.
- The group made up just 10% of the market in 2019. The proportion steadily climbed as brokers slashed commission fees and the pandemic fueled violent price swings.
- The growing popularity of options trading reflects an increase in retail investors’ knowledge and access to complex investment products, Mecane said.
- Still, the group isn’t throwing the market out of whack. While still a “significant force,” retail investors won’t be able to drive valuation levels on their own, Mecane said.
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Retail investors now account for roughly 20% of stock-market activity on average and nearly one-quarter of trades on peak days, Joe Mecane, the head of execution services at Citadel Securities, said in an interview on Bloomberg TV on Thursday.
Individual investors made up just 10% of the market’s trades in 2019. That share then crept to 15% as popular brokerages including E-Trade, TDAmeritrade, and Charles Schwab erased their commission fees and lowered the barrier to entry for casual traders, Mecane said.
And the percentage is climbing on the back of coronavirus-related volatility, Mecane said. The Federal Reserve’s unprecedented March 23 policy announcement set a backstop for risk markets and prompted an influx of profit-hungry retail investors. But even as the rally has slowed, those traders are “becoming a more significant liquidity source in the marketplace,” Mecane added.
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Much of the new trading activity is concentrated in options contracts. The derivatives allow investors to leverage long and short positions in the stock market, adding volatility to an already choppy environment. The growing proportion of options trades reflects an increase in retail investors’ knowledge and access to complex investment products, Mecane said.
“We do see expansion of their participation in different option instruments. Historically it’s been more of a single-leg focus on products,” he said. “We’ve seen them get more into index products. We’ve seen them expand into more complex order types.”
Not all of Wall Street has welcomed the growing demographic. Industry veterans have described the movement as muddying a market that valued discipline over speculation.
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Such a narrative ignores the simple fact that retail investors aren’t driving the entire market, Mecane said. Casual traders are benefiting from the market more than they did during the last downturn, when commission trades and account minimums ate into gains. While the group’s participation is growing, it isn’t throwing the market off its axis, he added.
“Certainly retail investors have a different investment horizon and a different profile to their orders, but ultimately the market is going to price in all the information that it has at that point in time,” Mecane said. “Retail is clearly a significant force, but they’re not going to be the ones that are solely able to drive valuation or market levels.”
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