New Retail Interest Spurs Renewed Focus on Investor Education

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Suzanne Cosgrove

Suzanne Cosgrove


Equity markets are seeing an influx of new retail interest, with up to 25 percent of market activity executed by retail investors on peak days this year, compared with about 10 percent in 2019, said John Zecca, Nasdaq’s executive vice president and chief legal and regulatory officer.

The trend is pushing market professionals and regulators to look at comprehensive ways to educate and protect novice market entrants. 

“During this time period, we have seen some challenging questions,” including about complex investments like inverse exchange-traded funds (ETFs) and options leverage accounts, said Lori Schock, head of the SEC’s office of investor education and advocacy. “We’re a disclosure-based system in the U.S.,” she said. “We need people to read and understand it. You need to do your homework.”

Schock was among the half-dozen panelists who examined the retail trend Monday in a Nasdaq-sponsored webinar titled, “The Evolution of Retail Investing and Related Obligations.” 

Ironically, time spent at home during the lockdown following the onset of COVID-19 may have contributed to retail inflows, panelists said. 

A look at the data to determine when the trend of new retail interest began suggests the increase may have started with implementation of free-commission trading, said Phil Mackintosh, chief economist at Nasdaq. “But it was the pandemic itself” that fueled it, he said, “with investors having time on their hands and the market sell-off presenting buy opportunities.“

Gerri Walsh, senior vice president of investor education at the Financial Industry Regulatory Authority (FINRA), said a recent survey conducted in association with NORC researchers at the University of Chicago showed it was largely younger investors, including millennials, that entered the market in recent months. Those in the 45- to 59-year age group “were less likely to hop in during the pandemic,” she said.

In addition to trading in investments like micro-tech stocks, new retail investors are buying and selling call options to increase market exposure, Mackintosh said. Data show “a lot of people are using options because they can’t afford the full price of higher-priced stocks,” he said. Fractional shares also are a draw for investors looking to get into high-priced stocks like Amazon or Alphabet but can’t afford to buy full shares, he noted.

“Most investors appear to be interested in individual stocks and funds, with bonds a distant third,” Walsh said. “Most of them are not involved in complex products.”

Panelists debated the influence of social media platforms like Reddit on younger investors.
Social media is a huge influencer, noted Joe “JJ” Kinahan, chief strategist and managing director at TD Ameritrade. “Bad actors can take advantage of social media, but a lot of people post good, solid information. You have to sift through it,” he said.

“I find it very interesting that two years ago we were all throwing up our hands and asking how to get new accounts into the market, and now we’re worried they’re ‘too dumb’ to be in,” Kinahan said. “Let’s encourage people to get educated and make it a positive experience.”


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