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The GameStop mania might be over, but retail investors look here to stay

Luis Alvarez

The GameStop bubble has come and gone but the rookie investors who speak emoji and Reddit may be here to stay with big implications for brokerage firms, as well as traditional investors who must pay closer attention to where this fast-moving, smartphone app-wielding crowd is moving next.

“We believe some of the new retail activity is here to stay,” wrote an analytics team at Bank of America in a report to clients.

Bank of America’s team found that the unprecedented surge in brokerage app downloads during the GameStop mania is continuing at a rapid pace this month even with the GameStop trade itself now forgotten. Credit Suisse data shows retail trading as a share of overall market activity has accelerated in recent months and has now doubled compared to the start of last year.

Plus, with the potential for a new round of stimulus checks this month, another rush of cash from these new investors could be ahead.

Retail trading has been accelerating since the industrywide decision to drop commissions in the fall of 2019. Since then, the pandemic-fueled market volatility brought new investors into the world of stocks, sometimes for the first time. Work-from-home, stimulus checks and higher personal savings levels, as well as social media platforms like Reddit, have only accelerated the boom in retail trading.

There were 3.7 million downloads of Robinhood in January, according to app market intelligence firm SensorTower, even with the millennial-favored stock trading app’s unpopular decision to put trading restrictions on a handful of stocks during GameStop’s climb. After the GameStop drama in February, downloads are still tracking strongly with 1.8 million month-to-date.

Traditional brokerages like Charles Schwab and E-Trade also saw an influx of new clients, as well as new entrants like Webull. The download levels well surpassed the retail participation seen during the Covid-19 pandemic.

Retail trading has doubled since last year

Since the start of 2020, retail trading as a share of overall activity has nearly doubled from between 15% and 18% to over 30%, according to Credit Suisse. The chart shows a spike in activity in recent months.

The Wall Street firm estimates the total retail and wholesaler share of U.S. trading volume since 2017, using TRF, or trade reporting facility volumes, as a proxy for retail investing. It includes retail trades that are routed to market makers, as well as dark pools — which are private forums for trading. The vast majority of retail trades (90%) are reported to the facility. 

Trading in general has doubled since last year. About 15 billion shares are traded every day, up from 7 billion last year, according to Piper Sandler.

“Double with retail being a greater percentage of that double in the marketplace,” Piper Sandler analyst Richard Repetto told CNBC earlier this week.

Retail investors have been specifically interested in options trading, a more sophisticated way to trade equities. At the largest e-brokers, 32.7 million contracts traded on all the equity option exchanges in December, according to Piper Sandler. In January, a record 39.8 million contracts a day traded.

Reddit crowd

A new, younger, more social-media-savvy cohort has entered the fray from the GameStop mania, a phenomenon that affects brokerage companies and traditional investors.

Posts on Reddit’s WallStreetBets page grew last month, so did accounts on Robinhood, according to social media analytics platforms ListenFirst and SimilarWeb. As conversations on WallStreetBets spiked above 800,000 each day, daily downloads of Robinhood topped 400,000 per day.

These accounts, and those on E-Trade and TD Ameritrade, were primarily investors between the ages of 18 and 34, according to Bank of America.

“This is important because it’s not just retail investors that may increasingly be a force in markets, its young retail investors,” stated the bank’s note.

While social media usage and retail trading have calmed this week, both are still elevated which “may suggest some of this higher interest could persist