Big Investors Are Dying to Know What Amateur Traders Are Doing
In America retail investors now account for 20% of cash equities trading volume and 12% of options trading volumes (making them the second-largest group of investors in the market). Such is the volume of trading now emanating from stay-at-home traders that “With the sway of stay-at-home traders growing and starting to eclipse other influences on equities, figuring out who is doing what among amateur stock dabblers has become a critical mission for big investors. They’re canvassing Reddit threads like r/wallstreetbets and picks at retail brokerages, plugging data into programs and trying to gain an edge.”
In an ironic reversal of roles, retail investors seem to have entered some of the stocks which have rallied most strongly post-Covid earlier than institutional investors: “Signs of retail interest abounded for Tesla Inc., including at Robinhood, as early as July before the shares staged an 80% run. A Goldman Sachs basket of stocks most popular with individual investors is up 40% this year and has surged 90% since March lows, more than the price gains for both the Nasdaq 100 and the S&P 500. Benn Eifert, chief investment officer of hedge fund QVR Advisors, points to he r/wallstreetbets thread on Reddit, which boasts 1.5 million users — “degenerates,” using the site’s own nomenclature. “There are influencers within that community that will say, ‘Alright, today we’re buying the Tesla $2500 calls for next Friday,’ and the volumes that will print are huge,” Eifert said in an interview on Bloomberg’s Odd Lots podcast. “And you better believe that the most sophisticated options players in the world — the Susquehannas and Citadel Securities — are extremely focused on this flow and predicting it in real-time.”
So, now tracking retail investors’ flows and second guessing this flow has become an essential activity for some institutional investors: “As an institutional sales trader, Susquehanna’s Murphy tracks retail trends in options and supplies it to clients, alongside other research. He tends toward classic market data, and based on trading volume and size, he’s able to tell if retail flow is flooding in. In the past, before website Robintrack.net — which provided hourly updates on retail stock demand — was forced to shut when the Robinhood investing app curtailed access to data, he’d sometimes use the site to confirm his suspicions.”
Whilst it is easy to sneer at these trends and mutter that this is top-of-the-bull-market type of stuff, what this underlies is that the differences between retail and institutional money are shrinking both in terms of information/data available and in terms of the technology available for trading. That in turn powers the rise of the index funds in the Western world and tells us in India that as and when information access is democratised in India, Indian institutional investors will suffer the same fate.