[ I N - D E P T H | R E T A I L I N V E S T M E N T ]
Chief executive officer of investment bank Peel Hunt , Steven Fine , says speculative stocks in the market are acting as a supplement for the lack of book making activities that are available day-to-day during the pandemic .
“ People of a speculative nature
" There ’ s a lot of volume going on that we on the institutional side just can ’ t interact with ."
have turned to the markets to fulfil their book making needs during lockdown ,” says Fine . “ You have this bizarre situation where for retail if you are of a speculative nature , there is no horse racing , no football , no casinos , no ability to effectively do any book making at all on any other product whatsoever . But you ’ ve got this thing called the stock market .
“ Retail flows have grown enormously . You ’ ve only got to look at the Hargreaves Lansdown numbers which show the number of accounts opened by individuals under the age of 35 was a new record ,” adds Fine .
In the US alone , retail sales jumped 17.7 % in May from the previous month , more than a 50 % increase on the forecasted 8 %. In July , it was speculated that retail investors represented 25 % of the market , up a significant 150 % compared to figures from 2019 .
Icy relations This army of retail investors has impacted their institutional counterparts . One senior buy-side trader speaking to The TRADE on condition of anonymity explains that pools of retail liquidity were often out of reach for the institutions , leading to “ icy ” relations
20 // TheTRADE // Fall 2020
SENIOR BUY-SIDE TRADER between retail investors and institutional ones .
“ We can only access [ retail trading flows ] via a few select brokers ,” the trader says . “ That ’ s the only way we can get into those sorts of flows . So , when you do see something in Lloyds where on certain days 40- 50 % of trades is through retail networks , the only way we get to interact with that is either when the market maker is making those prices unwind into the market or if we have certain access into those brokers .
“ What you can end up with if you don ’ t have that access is a lot of volume going on that we on the institutional side just can ’ t interact with . That brings a different element to trading . You have to be very aware of those types of stocks and manage that accordingly .”
Retail volumes tend to have a greater turnover in the morning , meaning that institutions are forced to adapt their trading patterns to keep up with the market and this trend . The trader adds his trading desk were not as active in the morning due to the volatility in prices earlier on in the day . As retail orders usually hit the market a round 9am , buy-side traders have to change how they trade , and at which time .
“ We have to be more careful because there is wider spreads and more volatility . It ’ s important to be more aware of the prices you are trading at , as opposed to later in the day when there is a lot more turnover in the stocks and prices are more stable . If you ’ re trading against that then that ’ s fine , but if you ’ re trading the same way then that causes problems obviously if the stocks being ramped up in your face .”
The buy-side trader believes that retail investors give a false view of the market , particularly in the US . “ Although the markets were slightly up that was a
" When markets are volatile there is absolutely more trading activity , because people like to hop into the market and make short-term profits ."
STEVE SANDERS , CHIEF PRODUCT OFFICER , INTERACTIVE BROKERS
result of five big stocks and the rest of the market was actually quite weak .”
This , they add , has “ forced institutional investors to get into those stocks when they wouldn ’ t necessarily have been involved in them . I think some of them feel they have to be involved in it to not lose performance .”
Shifting landscape Peel Hunt ’ s CEO , Steven Fine , counters that retail