Mom and pop trading has spiked to record levels as brokers shift to zero commissions

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  • Trading volume has exploded at TD Ameritrade, E-Trade, and Charles Schwab, as retail investors make their way into the world of equity investing at record rates, Bloomberg reported.
  • Charles Schwab slashed commission in October and TD Ameritrade and E-Trade quickly followed, bringing down a financial barrier to stock trading.
  • The inflows come as equity indices reach historic highs and some of the names retail investors are most interested in are at soaring valuations.
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It's easier than ever to take up stock trading, and more mom and pop investors are doing just that.

Trading volume at TD Ameritrade Holding Corp. and E-Trade, collectively, has hit an all-time high, Bloomberg reported Friday, citing Sundial Research. At Charles Schwab, trading volumes, which Sundial measured through daily average revenue trades, are up 74%, according to Bloomberg.

Those spikes come after all three brokers cut their trading commissions to zero, knocking down a financial barrier to trading in October. Since that point, Bloomberg reported, retail investors have rushed into some of the stock market's biggest names - Apple, Virgin Galactic, and Tesla.

The boom in retail trading differs from the way retail investors are typically thought to engage with the stock market - that is by investing their money with funds that, passively or actively, navigate markets for them. Now, with monthly trading volumes at places like TD Ameritrade up 40% versus a year ago, retail investors are increasingly navigating equity markets on their own.

That's as major US equity indexes surge to new, all-time highs.

"When you take a bull market and juice it with zero commission trading, we can expect it to generate interest among retail accounts. That, it did," Jason Goepfert, president of Sundial, told Bloomberg. "Retail traders have become manic."

Some, such as the vice president of trading and derivatives at Charles Schwab, said that the surge in retail trading reflects confidence in the bull market. "People are just optimistic. Things are going up and they continue to go up," Randy Frederick told Bloomberg. Charles Schwab was the first firm to slash commissions in October, setting off a price war in the industry.

The most popular stocks among traders at TD Ameritrade are the ones that get the most mainstream attention: Apple, Microsoft, Tesla, and Virgin Galactic, Bloomberg reported.

Those are some of the same names that have seen soaring valuations in recent months. Tesla's bull run has defied bears' predictions and, some analysts say, reason.

"Younger people buy products they are familiar with, or more importantly, think are going to be viable products down the road," JJ Kinahan, chief market strategist at TD Ameritrade, told Bloomberg.

But to others, retail trading preferences signal something more foreboding: "There's sometimes no fundamental reason for it. It is just based on perception - a perception based on narratives that only run an inch deep," said the chief global market strategist at Cantor Fitzgerald, in a note, Bloomberg reported. To him, Bloomberg reported, that's reminiscent of the dot-com bubble.

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