[ I N - D E P T H | R E T A I L I N V E S T M E N T ]
RETAIL INVESTORS :
A FORCE FOR GOOD OR ?
Following a surge in retail investment amid increased market volatility and the coronavirus pandemic , Annabel Smith unpacks its potential impact on institutional investors and the trading landscape .
An isolated population lured in by a string of brokers opting to offer 0 % commissions has seen retail investment surge during the coronavirus pandemic . The sudden wave of stay-at-home investors eager to profit from increased volatility has , however , raised concerns as to how retail investors coexist and interact with their institutional brothers and sisters in the market .
Increased volatility always encourages market participation from individuals , says Steve Sanders , executive vice president of product development at retail broker Interactive Brokers .
“ I have seen in my 20 years over and over again , when there is an increase in volatility in the markets there is absolutely more trading activity and that is because people like to hop into the market and make short-term profits . When the market is stagnant and moving sideways there is just not as much interest .”
Interactive Brokers reported it saw almost 40,000 new accounts open in March alone , well above a 50 % increase on the previous month ’ s 15,000 . By July , the brokerage ’ s total number of new accounts had grown to 912,000 , up by more than 200,000 since January . Robinhood , the online brokerage platform offering 0 % commission to its users , is now valued at $ 11 billion . The platform that promotes itself as a tool for ‘ democratising finance ’ by reducing market access costs boasted three million new users in the first quarter of this year alone , taking its total customer base to 13 million .
" Retail flow is helpful for institutional investors . It enables them to transact within the spread more easily ."
STEVEN FINE , CHIEF EXECUTIVE OFFICER , PEEL HUNT
18 // TheTRADE // Fall 2020