Retail Traders Slide Back Below 20% of Market's Total Volume

(Bloomberg) -- The worst quarter for the S&P 500 since the start of the pandemic appears to have driven away some do-it-yourself investors. 

The retail trading surge that began with pandemic lockdowns has now abated, as total equity volume from individual investors fell to 19% in the third quarter, down from 24% at the start of this year, according to Securities and Exchange Commission and market data compiled by Bloomberg Intelligence. 

“Some may have come out ahead, but we expect most individual investors to transition to long-term strategies as day-trader losses mount,” BI’s Jackson Gutenplan and Larry Tabb wrote in a note. “Retail volume could continue to backpedal as over-trading leads to losses, especially if markets remain choppy or correct.”

BI’s data mirrors reports from online brokers Fidelity, Robinhood and Charles Schwab, all of which saw retail trading drop in the third quarter.

Anecdotal evidence shows individual investors had many reasons for backing away from their stock screens, including big losses, a desire for more education and less time to monitor the market as they return to the office.

But retail investors haven’t completely thrown in the towel and involvement remains historically high. Data suggests that there was incrementally more retail participation in October than September, BI said. Indeed, retail traders likely played a role in the S&P 500’s 7% rebound last month after September’s selloff.

“Commission-free transactions continue to elevate participation, but any market correction could lead to unexpected losses for day traders and discourage individuals,” the analysts wrote. 

Meanwhile, off-exchange volume was roughly 44% of the U.S. equity market total in October, the highest reading since February and up from nearly 42% in September, according to BI. 

“Stocks had a really good month in October,” Gutenplan said. “I think retail is really aided by the bull market.”

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