Retail traders make up nearly 25% of the stock market following COVID-driven volatility, Citadel Securities says
Retail investorshave 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
tradingreflects 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.
- Visit the Business Insider homepage for more stories.
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
Read more: Wall Street is being shaken to its core by a legion of Gen Z day traders. From a casual hobbyist to a 20-year-old running a 14,000-person platform, meet the new generation of retail investors.
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
Read more: GOLDMAN SACHS: Wall Street is bracing for a historically wild stock market as the presidential election nears. Here's a surprising yet simple strategy for protecting your portfolio — regardless of outcome.
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."
Now read more markets coverage from Markets Insider and Business Insider:
Ed Hyman was named Wall Street's best economist 39 times and called the tech bubble. He outlines 3 market drivers that are aligning for investors looking to capitalize on coronavirus chaos.
Cryptocurrency marketplace Coinbase reportedly eyeing stock-market listing as early as this year
Oil drops 4% after resumed production at Libyan field threatens market oversupply
- A 'hole' 30 times Earth's size has spread across the sun, blasting solar winds that'll hit our planet by end of this week
- A former Twitter engineer said they watched colleagues 'drop like flies' from a virtual meeting during Elon Musk's mass layoffs
- Finland is offering free vacations for people to come and learn how to be happy after being named the happiest country in the world
- Paytm announces launch of its upgraded payments platform powered by 100% indigenous technology — a shining example of ‘Make in India’
- Finance ministry clarifies on hike in STT on options trading
- No draft of Digital India Bill published for public feedback or comments
- Srikanth Venkatachari new CFO of Reliance Industries, Alok Agarwal appointed advisor to Mukesh Ambani
- Best water purifiers to buy in India 2023