Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

The Truth About Who Account For Most Of The Market's Trading Volume

By Mike Zaccardi, CFA, CMTMarket OverviewJul 28, 2020 09:30AM ET
www.investing.com/analysis/whats-behind-increased-trading-volume-hint-its-not-robinhood-200532169
The Truth About Who Account For Most Of The Market's Trading Volume
By Mike Zaccardi, CFA, CMT   |  Jul 28, 2020 09:30AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

I’VE PREPARED countless meals over the past few months—a result of COVID-19, which continues to have a big impact on daily life, especially here in Florida. Still, I’ve come to enjoy cooking and eating at home has saved me a ton of money.

But not all coronavirus habits have been good for our financial health. That brings me to the (supposed) rise of the Robinhood trader. By now, we’ve all seen the headlines and read the stories.

During the first half of 2020, one of the great narratives was the surge in trading among millennials and the generation that followed them, Gen Z. The storyline: These small traders were bidding up bankrupt company stocks, while also making COVID-19 plays like Zoom even hotter. These smalltime players have even been fingered for the recent stellar market performance of Tesla (NASDAQ:TSLA).

I love a good yarn as much as the next guy. But in this case, the evidence just isn’t there. A few weeks ago, Goldman Sachs (NYSE:GS) produced a research note showing that, yes, individual investors are trading stocks and options more actively. But can we put some numbers on that?

It turns out we can.

Goldman’s researchers calculated small-sized buy and sell orders for stocks and options as a percent of total trading activity. Result? Small traders have lately accounted for about 2% of stock trading volume and 13% of options volume. These may not be perfect indicators of small investor activity, but they’re probably not too far off. What individual stocks have small investors been trading? The ones you’d probably expect: Tesla, Netflix (NASDAQ:NFLX), Chipotle (NYSE:CMG), Beyond Meat (NASDAQ:BYND) and Zoom.

What’s driving the increase in retail trading volume? Three factors seem to be at play:

  • Commission-free trades. Brokerage commissions basically went to zero over the past two years as brokerage firms have fought to keep and increase their business.
  • COVID-19. The pandemic, lockdowns, working from home and online college classes have made people restless. That, I suspect, has triggered this increase in gambling—and, yes, gambling is what these traders are doing.
  • Trading apps. Robinhood, as well as the major brokerage firms, have apps that make it easier than ever to trade with the swipe of a finger.

Still, we need to keep this trend in perspective. Households directly hold about a third of U.S. individual stocks. Yet small retail trades represent just 2% to 2.5% of total trading volume. Buys and sells by everyday investors are not only a fraction of total market volume, but also trading is small relative to what individuals own. Think of it this way: It’s like you have $100,000 invested in stocks and you let yourself trade with $7,500 of your portfolio.

If individuals aren’t driving the market, who is? Who’s the head chef? The Fed.

Just kidding. The big players are pension funds, foreign investors, mutual funds and other institutional investors. They account for far more of the stock market’s trading volume than individual investors. Who are the biggest players? That would be computer-driven high-frequency traders.

The upshot: Millennials and Gen Z aren’t turning the stock market into a giant casino, pumping and dumping stocks left and right. It may seem that way, given all the articles about “story stocks” and day traders. But make no mistake: There are far bigger cooks in the kitchen.

Original Post

The Truth About Who Account For Most Of The Market's Trading Volume
 

Related Articles

The Truth About Who Account For Most Of The Market's Trading Volume

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
M. Turner
M. Turner Jul 28, 2020 8:42PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
My hunch comrade Powell is the biggest player funneling the newly printed money to their agents JPM and GS.
Umut Saglam
Umut Saglam Jul 28, 2020 4:13PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Cool to know. Big sharks play around with small retaillers like me and do whatever they want.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email