With the rise of retail investors and online platforms, online trading has undergone dramatic changes in recent years. Retail investors with zero or little investment are entering the market at a low cost, participating directly in a wide range of assets. This has transformed business models and information flows in online trading. However, it has also led to potential risks of misinformation and instability.
Retail investors account for a rising share in online trading
Reddit forums like WallStreetBets have attracted millions of retail investors. With near zero-commission trading from Robinhood, these investors can participate in the market easily, bidding up prices of stocks and cryptocurrencies. Their share has risen sharply, accounting for a quarter of trading volume. This shows online trading is no longer dominated by institutions.
More online trading data available from various sources
In the past, information about firms mainly came from reports and meetings. Now with web scraping and monitoring social media, vast amounts of trading data is available instantly to retail investors. This information flow benefits those armed with a screen and some spare time.
New online business models emerging
The rise of retail investors has stimulated new online trading models like Robinhood and Reddit forums. These models link investors directly with markets at minimal costs, bypassing traditional brokers. The payment relies on selling user data instead of trading commissions. Traditional brokers on Wall Street face disruption.
Concerns on risks of misinformation and instability
The influx of retail investors also breeds worries of misinformation spread and market instability. Posts by individuals may drive prices away from fundamentals. And coordinated herd behavior could strain market infrastructure. Balancing open access and financial stability poses challenges for regulators in this new online trading landscape.
The growing participation of retail investors with zero or little capital is transforming online trading models and information flows. This promises wider and cheaper access but also brings concerns on misinformation and instability. Regulators need to update oversight while still enabling financial progress.