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Lu Wang and Vildana Hajric suggest at Bloomberg that commission free trades are driving an explosion of trading from retail investors. They write:
Their fingerprints are on Apple Inc.’s staggering rally. They piled into Tesla Inc. as it tripled, and turned speculative fliers like Virgin Galactic Holdings Inc. into some of the most heavily traded shares in the country. Why the enthusiasm? Some see a link to decisions by brokerages to cut commissions on trades to nothing.
While it’s tough to know what’s causing what — bull markets are fueled by new converts but also lure them — trading volume at online and discount brokers has exploded. TD Ameritrade Holding Corp., which started offering free trading in October, has seen million-trade days multiplying at a record pace.
Along with E*Trade Financial Corp., daily average revenue trades — a standard industry metric that may be a bit of a misnomer now since buying and selling is free — have almost doubled to an all-time high since last September, data compiled by Sundial Research showed.
“When you take a bull market and juice it with zero commission trading, we can expect it to generate interest among retail accounts. That, it did,” said Jason Goepfert, president of Sundial. “Retail traders have become manic.”
Individual investors were seen as indifferent participants for much of the 11-year bull market. No more. The latest leg of their emergence times closely with October, when E*Trade, Charles Schwab and TD Ameritrade slashed commission fees to zero. Not that it’s firm proof of anything, but since the start of that month, the S&P 500 is up 13% and the Nasdaq 100 has surged 24%.
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