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Brokers Confirm Rise Of Retail Trading

Image via Jason Briscoe on Unsplash

Plenty has been written about the rise of retail trading over the last few months as the coronavirus has left many with little else to do.

We wrote last month about whether retail investors are trading out of boredom, citing a comment from Dan Egan, managing director of behavioral finance and investing at Betterment, who said retail investors are entering the market for "entertainment investing."

With earnings season underway, a handful of brokers have so far reported and confirmed that they're seeing record volumes in retail trading.

Charles Schwab reported last week that they managed 1.62 million daily active trades in the second quarter, a 126% increase from the same period a year earlier. Charles Schwab added 552,000 new accounts in the second quarterexcluding the 1.1 million accounts it picked up as a result of its acquisition of USAA’s brokerage portfolio, after adding a record 609,000 new accounts in the first quarter. Charles Schwab said it now manages a record $4.11 trillion in assets across 14.1 million accounts.

TD Ameritrade, which is set to be acquired by Charles Schwab, reported yesterday a record 661,000 new funded retail accounts in the second quarter, surpassing the 608,000 new funded retail accounts in the first quarter. TD Ameritrade also reported a record 3.4 million daily average revenue trades in the second quarter, marking a 62% increase from the first quarter and an increase of more than 400% from the same period a year earlier.

"Zero commissions and sustained volatility drove new and existing client engagement, leading to record trading levels," TD Ameritrade interim president and CEO Steven Boyle said.

Interactive Brokers also reported results yesterday, which showed similar trends to Charles Schwab and TD Ameritrade. Interactive Brokers said daily average revenue trades jumped 111% from the same period a year earlier as customer accounts increased to 867,000 in the second quarter.

Interactive Brokers said second quarter results benefitted from "higher commission revenue due to increased trading activity and a higher rate of customer accounts opened during this period."

Joe Mecane, the head of execution services at Citadel Securities, agrees retail investors are accounting for an increasing share of the market's total volume. Mecane said retail investors account for about 20% of volume and up to 25% on peak days, compared to about 10% in 2019. Mecane added that many new retail investors are increasingly turning to options.

"We do see expansion of their participation in different option instruments. Historically it's been more of a single-leg focus on products," Mecane said. "We've seen them get more into index products. We've seen them expand into more complex order types."

With the market continuing to rebound from the March low, the rush of retail investors into the market is unlikely to slow down until the market sells off. As Mark Cuban accurately said, "Everybody's a genius in a bull market, and everybody's making money right now because you've got the Fed put."

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