Analysis: Retail traders position for volatility after U.S. election

In this news, we discuss the Analysis: Retail traders position for volatility after U.S. election.

NEW YORK (Reuters) – Retail investors have been a growing force in 2020, exploding in numbers during lockdowns and helping fuel the rebound in equities after lows due to the pandemic. Now, as election-related volatility increases, this new cohort sees opportunities.

Day traders are leveraging resources online and in virtual communities to position themselves for what could be a bumpy ride depending on how long it takes to resolve the uncertainties of Election Day.

Over the past year, traditional online brokerage firms such as Charles Schwab Corp SCHW.N and Fidelity have teamed up with upstarts like Robinhood to get rid of trading fees, while still allowing users to buy shares. individual shares, which allows anyone to own a piece of a business.

When stock prices plunged in March and governments and central banks flooded the economy with cash, millions of potential investors saw an attractive entry point and downloaded trading apps to their mobile phones.

“It’s just something I picked for a hobby,” said Sam Freeman, 23, a Chicago cancer researcher, who said he started day trading in April after seeing a conversation about the options trading on Twitter. He traded Microsoft Corp MSFT.O options and said he made money from a rally around Tesla Inc.’s TSLA.O shares division.

With the election at hand, he relies on a WORK.N group from Slack Technologies Inc. made up of a few thousand retail marketers with varying levels of experience and social media to position himself.

He said he was betting Democrat Joe Biden would win over Republican Donald Trump, followed by a market sell off.

But with a record number of early votes having already been cast, the results could come later than in previous years, which “could increase volatility in the market, especially in the event of a tight result,” Barclays said in a note. of research.


Despite the volatility that has been a hallmark of 2020, a record number of individuals have exploited the markets.

Three million new Robinhood accounts were opened in the first four months of 2020, the brokerage said. TD Ameritrade, which was recently purchased by Schwab, said more than 1.2 million new funded accounts were opened on its platform during the first half of the year and that the use of educational resources from the business was more than three times that of 2019.

“The retail investor has the ability to be much more sophisticated than ever before,” said Spencer Mindlin, analyst at Aite Group.

Along with near frictionless commerce and a plethora of educational materials, the rise of retail is in part due to the majority of tech-savvy and independent-minded millennials, he added.

“It’s more of DIY, like DIY YouTube videos on how to invest your money,” he said.

Jaidan Craig, 23, of Provo, Utah, said he has been investing for a few years and regularly posts investing videos for his YouTube channel, which has nearly 2,000 subscribers. He said he wanted to emulate Ray Dalio, founder of Bridgewater, the world’s largest hedge fund, which espouses ideas such as diversifying portfolios across different asset classes.

Craig invests money every week, and lately he said he found stocks too expensive, so he had more cash. If stock prices fall due to electoral uncertainty, he will treat it as a buying opportunity.

“The bottom line is just to invest more of my money, to deploy more of it in stocks as they go down,” he said.

The influx of new retail investors benefits the market in many ways, for example by promoting financial literacy and drawing more attention to a wider variety of businesses that institutional investors tend to focus on, a said James Angel, professor of finance at Georgetown University.

“Individual investors bring a lot to the table,” he said.

To be sure, these investors aren’t always going to hit home runs, he added.

Retail investors can be bitten by sophisticated strategies in which losses can accumulate if the markets turn, such as margin trading, the use of derivatives or betting on highly speculative stocks.

In early summer, seasoned traders were scratching their heads as retail traders bid on stocks that were or were about to go bankrupt, such as Hertz HTZ.N, Chesapeake, Whiting WLL.N and JC Penney, who took a roller coaster ride, drawing comparisons. to casino games.

“But some college students with $ 25 to spend can basically afford to lose that money playing a fractional share on a popular trading app,” rather than spending money on avocado toast Angel said.

Reporting by John McCrank and Imani Moise in New York; Edited by Megan Davies and Matthew Lewis

Original © Thomson Reuters

Originally posted 2020-11-03 11:46:11.

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