Learn more about this game-changing wave of nontraditional household traders.
Q3 2021 hedge fund letters, conferences and more
Retail investors are the newest wave on Wall Street. Over the past 12-18 months, “armchair trading” became mainstream. In other words, retail investors who make investment decisions without regard to traditional stock fundamentals began to dominate public markets. It’s been coined as the “Robinhood Effect”: the rise of retail investors taking up stock trading as a hobby as social media became the catalyst for a whole new army of investors who are only just realizing their group buying power.
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In part due to increased time spent at home during quarantine and more browsing online in community conversation locations like Reddit and Twitter, and in part due to the influx of cash in the form of government stimulus checks, the stock market has forever changed as more everyday people realize they have power in their hands to make a real impact on stock prices and trading volumes. These aren’t negligible numbers - in just Q1 2020 alone, Robinhood’s platform saw three million new account signups.
Retail Investors Are the New Powerhouse Traders
As Darren Marble, the producer of Going Public explained, “Retail investors are a massive sitting powerhouse of stock-trading buying power. While these household investors are typically making small-time trades for fun in their downtime, they have the collective group buying power to affect prices, execute short squeezes, and in some cases, make or lose some serious money. This group of underrepresented investors are becominging increasingly financially literate and are using social media platforms to share information, organize trades in large quantities, and change the landscape of Wall Street as we know it.”
Although there may be some innate inefficiencies when those who lack traditional financial trading come to the table and make stock market trades, the retail investor is making a massive impact on the overall Wall Street picture. According to data from Bloomberg Intelligence, retail investor trading volumes on U.S. equities jumped to more than 20 percent in 2021.
Who Is the Retail Investor?
Typically, retail investors keep their trades to small amounts at any given time and are trading with a goal to increase their personal wealth. Although each trade may be small, when it’s repeated in large group volumes (like the crowdfunding seen with Gamestop on Reddit), it can make meaningful impacts on the prices of a particular stock. As seen with GME, the price spiked 1,645% in just 12 trading days.
Cryptocurrency - More Attractive to Women and POC?
There is a bulk of evidence that individual household investors can make an impact on financial markets, often leading the way to open new markets ahead of institutional investors. As Tom Lee told CNBC earlier this year, just look no further than Bitcoin. As this cryptocurrency has increased by about 275% in the past year, he says, “Bitcoin is a great example of non-professional investors discovering a market.” Due to all this activity, institutional investors are now going wild for crypto, and buying up the market as they now see it as a good tool against inflation.
Female traders, founders and investors are typically underrepresented in today’s financial landscape. In addition to women, people of color are often locked out of venture capital fundraising and have subsequently turned to investing in cryptocurrency over traditional stocks. According to a survey conducted this past June by NORC at the University of Chicago: “41 percent of cryptocurrency traders are women, while women make up only 38 percent of stock traders. Similarly, 44 percent of cryptocurrency traders are investors of color, compared with only 35 percent of stock investors.”
Due to the historical lack of representation for women, people of color, and LGBTQ+ minorities in trading, the NASDAQ has recently approved new listing rules covering diversity and inclusion standards, which includes requirements for boards to showcase more diverse leadership, including women and LGBTQ+ self-identified people on company boards. Companies who fail to meet and report this requirement will face delisting. The new rules go into effect in phases, starting with 2022 for disclosures and leading up to full implementation in 2023.
Going Public Docuseries Activates the Power of Retail Investors
Here to help break the boundaries of traditional investing and open a path for underrepresented groups to take their stab at the retail investing opportunity, Going Public’s new interactive series will be available to watch here on Entrepreneur.com 1/18.
The show, which features history-making trader Lauren Simmons, lets viewers Click-to-Invest in featured companies while they watch. This first-of-its-kind show allows for everyday investors to get in on the ground floor of investing in growth-stage companies as they pursue their public offerings which are typically reserved for institutional investors and venture capitalists.
Learn more about Going Public’s upcoming show launch and the three companies they will be featuring on their path through Regulation A+ financing here: https://goingpublic.com/companies.
This post first appeared on Entrepreneur