[ I N - D E P T H | R E T A I L I N V E S T M E N T ]
investors are a vital part of the market ’ s ecosystem and the price formation process . “ It is a good impact . Without question . Retail flow is helpful for institutional investors . It enables them to transact within the spread more easily . It is an additional pool of capital that they otherwise wouldn ’ t be able to tap into .
“ We ’ ve developed proprietary tools to allow institutions to tap into retail flow quite easily at the middle of the spread , which seems to work very nicely with limited slippage and low transaction costs ,” adds Fine .
Interactive Brokers ’ Sanders continues that the surge in involvement from retail investors shows an ongoing evolution in the market that might not favour institutions .
“ The institutions are going to have to be careful as the landscape is shifting . Market makers who are after short-term profits from fluctuations are certainly going to have to be a lot more careful .”
Often labelled ‘ dumb money ’, retail investors with an untrained eye can slip into a pattern of viewing the market as one-way , driving up the price of certain stocks and causing unexpected fluctuations .
Evidence of this became apparent when shares in car hire company Hertz surged 800 % despite the company filing for bankruptcy in May . The company is in $ 18 billion of debt , but despite this , interest in shares in the company has skyrocketed .
The surge in retail investment has prompted warnings from both the European Securities and Markets Authority and the UK ’ s Financial Conduct Authority to firms with retail clients . They warned retail brokers that they have a greater responsibility to protect less sophisticated investors during intense market volatility .
“ The impact is if individuals take their money away from institutions and manage it themselves ,” Fine concludes . “ If you have your money with an asset manager but decide actually you don ’ t want it there anymore and you want to put it in your own pension fund , which you administer yourself , that is a change . If everybody does the same thing , that ’ s where the institutional changes come .
“ However , whilst there is an interest in markets when stocks are volatile , I still think there is an element of ‘ I ’ m not sure what I ’ m doing here I ’ d rather let a professional money manager deal with it '.”
" Although the markets were slightly up , that was a result of five big stocks and the rest of the market was actually quite weak ."
SENIOR BUY-SIDE TRADER
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