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The New Wave of Individual Investors

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We’ve all been hearing a lot more about the stock market recently. Thanks to some head-turning volatility in individual stocks, it’s been a busy start to the year and we’ve already shattered at least one record – 24 billion shares were traded across U.S. exchanges on January 27.


At the largest online brokers, the number of daily trades has tripled since 2019.


A lot of trading by individual investors (aka retail investors) helps explain the surge in activity. But is this a sign of a permanent change, or just a blip? John Marshall, head of derivatives research for Goldman Sachs Research, joined other experts from the company to share some insights on these traders in a recent episode of Exchanges at Goldman Sachs, which you can drop in on here.

The retail surge started before 2021

The recent trading spike – and a lot of news about a frenzy related to shares of some specific retailers – has put the spotlight on individual investors. But the jump in trade activity isn’t exactly new, according to Marshall. “For the largest online brokers, the number of daily trades has tripled since 2019,” he says. That’s not to say that everyone has joined, though – the daily trades are being made by less than 10% of the online brokers’ retail traders, Marshall adds. 

So while a “a vast majority” of retail investors only trade a few times a year, he says the small portion of active traders have become a lot more, well, active in the market recently. And these new active traders are likely trading in smaller sizes than retail traders were even a couple of years ago, he adds. 


Some people have more time on their hands to test out trading. Zero-commission trading has made it easier to trade, too. 



But it’s not just individual traders who have stepped up their game. “The volume of trading with institutional investors has also gone up,” Marshall says. “All traders are trading more.” 

What’s driving the trading surge

Now for the million-dollar question: What spurred all of this interest in trading? Marshall says there's not really a "neat" answer, but he notes that Goldman Sachs studies show that retail investors “buy stocks when the stock market attracts their attention and when they have money to invest.” Even though many Americans are hurting financially as a result of the Covid-19 pandemic, there are other dynamics that may be hiking up trading activity. For one, some people are working from home and have more time on their hands to engage in trading. 

What’s more, the ease of trading and the market itself could also help explain the increase in activity. Zero-commission trades for both stocks and options “have made it easier than ever to invest that money,” Marshall says. The past year has been especially volatile in the stock market, which means that investors who buy and sell at the right time have the potential for “unusually large profits and of course, unusually large losses,” Marshall says.


In late January, daily trade activity on U.S. exchanges shattered a 2008 record.


Finally, there could be some level of FOMO. “When investors see testimonials of others that have outsized returns, they’re attracted to more speculative trading strategies,” Marshall says. While many investors try to avoid volatility by making long-term and diversified investments in things like mutual funds and exchange-traded funds, today’s most active traders aren’t going for a buy-and-hold strategy, Marshall notes. Most of the very active traders are opening and closing positions within the same day. “So there’s limited ongoing risk,” he adds. 

As for those of us who don’t have the stomach for day trading? We can continue to watch what’s happening from afar. “For the typical long-term fundamental investor in large-cap stocks, we don’t see any concerns from the recent trends.”

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.