A new generation of private investors has entered the market. They are young, active investors with money and more prone to take risks, crossing over crypto and equities. Powered by digital platforms and social media communities, retail investors have become a strong group able to influence asset prices and bail out hedge funds.
The fragile economic and financial backdrop spurred by the pandemic, work-from-home coupled with stimulus packages and fat cheques handed over in an attempt to save the economy have created high levels of uncertainty which, together with rising inflation, is forcing people to rethink their finances and savings.
Safe deposit boxes and bonds investments are not in fashion anymore; the new strategy tends to be riskier — more exposure to the stock markets and/or the spiciest crypto space.
Market analysts consider the resurge of private investor activity a result of the circumstances of the last months where stimulus plans from central banks in European countries and the US coupled with social restrictions left many people with time and money to spare — and invest.
In 2020 retail trading has taken off: in the US, the Wall Street Journal reports that 10 million individual investors started investing in the market last year.
One of the most prominent names in the movement has been Robinhood, a pioneering finance platform offering commission-free trades of stocks and exchange-traded funds via a mobile app. These new generation brokerages like Robinhood attract younger people and want to enter the market with smaller sums. Robinhood has had ‘explosive growth, with revenues of $958m last year, spurred by at-home trading. In the first quarter of 2021, revenue already surpassed $500m.
Using social media platforms and forums, these traders have coordinated efforts to show their strength: “In its few short years Robinhood has revitalised a type of day trading last seen in the dotcom boom, and subsequent bust, more than two decades ago. Investors on its app have sent stocks like Tesla and cryptocurrencies such as dogecoin to all-time highs, and brought conversations about financial markets back to dinner tables across the US,” reported the FT.
At the end of July, Robinhood IPO’d on the New York market in one of the most anticipated market debuts of the year. Robinhood stock price has been on a rollercoaster ride since: On the day of its IPO, Robinhood ranked among the most actively traded stocks but closed the day in a downfall of more than 8 per cent, sparking disappointment among market observers. However, less than a week later, shares went up 50 per cent to more than $70, resulting in a market capitalisation of $58.8bn. This price increase is partly due to private investors and Robinhood users themselves, coordinating efforts to drive up the company value.
The group of retail investors is becoming more powerful as well. In 2019, only ten per cent of the market was made of individual investors, but in 2020, it is believed that retail traders make up nearly 25 per cent of the stock market.
Platforms include the subreddit /Wallstreetbets (WSB), which became globally famous in the ‘GameStop saga’ earlier this year. The WSB community, made of individual retail traders, joined forces to drive up the price of GameStop (GME) shares to challenge practices of short squeeze by hedge funds.
The saga marked the start of a rivalry between ‘small’ day traders and institutional investors, with increasingly more engagement of the WSB community that currently has about 11 million members.
Platforms like Robinhood allow for these types of traders to enter the market, a space that was until recently a near-exclusive domain of financial institutions.
The growth in sign up to trading platforms is a testament to the movement’s rise: The trading platform operator Interactive Brokers has recently published results showing that it has over 1.4 million client accounts, 61 per cent more than the same time last year. With those customers holding over $363 billion in cash and assets, Interactive Brokers has ample opportunity ahead. Robinhood has an even more impressive number: as of March 2021, the company had 18 million funded accounts, as reported by Barrons.
One company listed on the London Stock market has been betting on private investors for more than 20 years. The global platform for financial news and data called ADVFN.com is based on subscriptions and advertisements, offering a full suite of tools for private investors to analyse the market and collect critical information for their trading.
ADVFN is an award-winning global stocks, shares and crypto information website providing market-leading financial tools and data to private investors. The platform offers stock price data from approximately 80 stock exchanges across the globe for free.
“We are the high-quality equipment for prosumers- which is today’s new word for traders. We are the cheaper version of Bloomberg terminal, “ said CEO Clem Chambers.
Post pandemic, the Investor platform ADVFN has also seen a growing number of new members, currently standing at over 3 million users globally with approx 70 million impressions a month.
“ADVFN has had a good run since the beginning of last year, and the interest in the markets has been very good for us.” He explained that something an old broker told him back in 2000 turns out to be true: that after the dot-com crash, it would be another generation till investors come back.
“It turned out she was right. All those that got totally fried in the dot-com crash never carried on. Only the really smartest and hardest, and the most switched-on people, carried on through that period.”
The new dotcom? The crypto market
Comparing the current market climate with the dot-com boom has become somewhat common. One of the main factors is the rise of the crypto market and its volatility. Whilst crypto may not be taken too seriously by the equities market professionals; they should pay attention to the behaviour of crypto investors as they may eventually join the stock market.
“Now the next generation is here, and they’ve been here for really two to three years now, but they first appeared in crypto… crypto is the rock n roll of their generation. They then started to pivot into equities, and we’ve seen that in America, and that upwelling, that Reddit crowd, that market boom, that Robinhood thing, has been very good for us,” Clem Chambers said.
Listen to the Clem Chambers in conversation with market analyst Zak Mir: https://uk.advfn.com/newspaper/advfnnews/60767/clem-chambers-interviewed-by-trader-s-cafe-with-zak-mir
Join us, put your questions & strategies to the test at our next WEBINAR Smart Investing: Stocks, Shares & Crypto
Delve into the secrets of smart investing with ADVFN CEO Clem Chambers. Clem is a British entrepreneur, successful investor & crypto proponent.
We cover everything from investment strategies, portfolio structure, diversification, value investing, tips on stocks, shares, as well as how to get exposure to cryptocurrencies.
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