We stand in the eye of the retail investor storm, the “rise of the retail investor”, and three questions pop to mind. How did we get here? Is this storm a new normality? Why does this matter?
How did it happen?
Individual investors are currently influencing (disproportionately, compared to historical trends) stock markets around the globe. In the first two months of 2021, the Financial Times reported, retail investors in the United States generated about as much equity trading volume as mutual and hedge funds combined.
A few drivers, some more predictable than others, took us here. It has never been as easy (or cheap) as now to trade. There are dozens of platforms that offer virtually free, super-easy to use trading apps. In January 2021 alone, roughly six million Americans downloaded a trading app, and retail brokerages reported record-high average daily trading volumes. To this, the pandemic added two extra ingredients. Cash, in the form of actual cash handed out by governments everywhere. And time, with so much home working happening across most economies.
Is this a new normal?
We can’t tell with any certainty whether this change is permanent. But if it is, the regulatory, administrative, legal and competitive implications are likely to be huge.
And a better new normal?
If this is the new reality, is it a better new reality? Sure enough, more competition and lower prices are always better. But retail investors also offered a stabilizing effect. When markets tanked in March 2020, they did not sell as much or as fast as institutional investors.
Of course, the rise of the retail investor also brings about the need for an array of tools to manage portfolios effectively. From trading and brokerage apps to screening, analysis, risk management and wealth tracking apps. There’s no shortage of them to help investors.
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