Where’s Retail? Individual Investors Pouring Billions of Dollars in Stocks But The Tide is Now Turning
Individual investors are now accounting for a bigger share of US equities trading volume with new brokerage accounts by them going above 10 million, already the first half of 2021 roughly matches the total accounts created throughout 2020.
Volume on cryptocurrency exchanges is drying fast, and gas fees on the Ethereum Network is staying at a single digit.
Mere $35 billion is currently recorded in exchange volume, down from nearly $90 billion in late May, representing a fall of more than 60%. The same is the case for Google Search volumes for crypto assets, NFTs, and centralized and decentralized exchanges. New Twitter followers in space have also gone down, much like the ranking of crypto apps on the App store.
The crypto market may have seen an exodus of retail, but the stock market is seeing an increased stream of retailers.
Retail has poured in a net $140.57 billion into the US market this year, up 33% during the same period a year ago and over six times the amount invested by them in 2019, according to data from Vanda Research.
Inflows surged again in recent weeks, but the tide is now turning, having fallen 17% over the past week.
“This is changing the way that one potentially trades these spaces—gone are the days when you can buy and hold a small-cap name and hope it yields 50% over time. It almost does that now in a matter of days,” said Viraj Patel, global macro strategist for Vanda Research.
The flood of new retail traders that started last year during the coronavirus pandemic has now turned into a leading indicator.
According to Goldman’s Derivatives Research group, retail trading activity is an indication of a large number of traders “paying attention” to a stock.
Because retail is not short-sellers and chooses between “buying” or “not-buying” the stock, it results in temporary net-buying flow from retail investors, pushing the stock up temporarily.
This volatility then attracts the institutional investors’ attention, who then uses their understanding of options market positioning, delta hedging requirements of market makers, and fundamental valuation to position for outsized profits.
And at some point, retail traders become a smaller percentage of overall volume resulting in a significant drop in retail trading as a percentage of total volume in the days ahead of the ultimate peak and subsequent decline.
A WSJ report published Friday shared that new brokerage accounts opened by individual investors in the first half of 2021 have already roughly matched the total created throughout 2020.
These new individual brokerage accounts have hit more than 10 million, according to estimates from JMP Securities.
Individual investors’ share of US equities trading volume, which surged to 20% last year, roughly double the figure from a decade before, has also increased to 26%, according to data from Larry Tabb, head of market-structure research at Bloomberg Intelligence.
Some online brokerages account for a sizable chunk of this, with Robinhood Markets accounting for 4% and E*Trade estimated to be 2.4%.
While the traditional market is seeing increased participation from retail, the crypto market is getting institutionalized. However, it is possible this is a rotation of profits from crypto into stocks which may get rotated back into crypto after some time. But that's to be seen, for now, the market is devoid of much activity, and prices are trading sideways in a “crab market.”