The swell in small investor trading from 2020 has extended into the new year, according to a recent article in The Wall Street Journal, bringing with it opportunities.
The article cites data from Piper Sandler that shows off-exchange trading for the first 11 days of January—which includes retail volume moving through wholesale market makers—accounted for a record 48% of the market. And it’s not just due to digital trading platforms like Robinhood, the article notes, adding that Morgan Stanley’s newly acquired E*TRADE platform saw 900,000 net new self-directed accounts from the second to the fourth quarter of last year and Charles Schwab (now combined with TD Ameritrade) is “regularly surpassing its fourth-quarter peak trading day of 7.8 million trades, which it reached on November 9th of last year.
“Day-trader mania for hot stocks and initial public offerings surely plays some part if all of this,” the article notes, but adds that “shifts in the environment may be altering how even more sensible investors behave, especially with rates on deposits and money-market funds at remarkable lows.”
While the article suggests that this surge in trading activity might calm if interest rates start to inch up and alternative forms of income emerge, it adds that “the psychological impact of last year…has given an opening to wealth managers…whose increasingly diverse businesses have more than one way to keep smaller customers around even if stocks cool.” It also suggests that this provides a growth path for banks, reporting that Goldman has been “expanding its reach to less-wealthy clients, and Citigroup recently reorganized its wealth business to span both the ultrarich and the merely well-to-do.”