Where Have the Meme Traders Gone?

Retail Stock Traders slow down a bit while Options Traders Continue to Roar

After being active in the retail trading space for over two decades, I see 2020 as the year that reset all expectations and redefined the market in ways we could never have imagined. Everything just changed. Every definition of size and trading habits we have grown to associate with over the years is different now.

For instance, from February 2020 to February 2021, over 13 million new first-time funded brokerage accounts entered the market and 3x trading volumes became a the new normal. Hypersensitive retail behaviors almost became mainstream. What was even more fascinating is that a new breed of individual investing had taken shape that posted and shared every fractional share trade and is eager to learn, express and connect with others. In many cases, the amount of socially posted content far outweighed the amount of underlying trading volume. The political climate and the uncertainties around the vaccine distribution continued to feed an already sensitive investor.

The euphoric environments hit a peak with retail trading becoming the center of congressional hearings. Options that were traditionally an instrument of the advanced traders suddenly got massive retail adoption. Options overnight became a mass appeal trading instrument. Options Contract Volumes reached record heights. Hundreds of firms launched Options Trading Platforms that drove simplicity and education to retail investors. This helped and fast tracked a lot of new and existing retail traders to graduate and start trading options.

All this seemed to change on March 15, 2021. While retail active options are growing steady and strong, we are seeing a very interesting trend where pure retail stock trading volumes are flattening up compared to their growth numbers up to Q1 2021. This is reflected in daily average trading volumes. Nasdaq day trading volumes indicate the average shares traded daily for the first two week of April are at 4.2B Shares/Day compared to the 7.4B Shares/Day in January. We at Tradier also a see a decline in the rate of growth of equity related API calls too.

On the other hand, retail options trading is seeing a continuing boom. Options trading volumes continue to grow at Tradier, in line with the trend we see at leading fellow options platforms. Trading platforms that center their focus on options are being launched by entrepreneurs, traders and educators and grow by hundreds, if not thousands. Currently, we are seeing a 10-20% increase in API usage of the Options API month over month.

This discrepancy in behavior between equity and options traders is rooted in the type of customers who engage in trading those instruments. Because options traders are generally active traders, they typically end up being more analytical and research-driven than early stage investors. The are two main reasons why we are seeing a continuing boom in option volumes while there is a leveling off of equity trading:

• Coming Out of Lockdowns: It has been over a year since the pandemic took over our lives and more and more people are getting out of their homes, wanting to engage in social activities than ever before. There is an increase in business requiring onsite presence during market hours. This trend is more likely to impact early stage and younger investor who are overwhelmingly stock traders. The advanced active trader has been more consistent to his trading devices and habits before, during and in a post pandemic environment spend. Options is an instrument more widely adopted and practices by advanced traders.

• Graduation During the Pandemic: Large number of new investors who entered the market starting in 2015 and those new players who jumped into the market during the pandemic have now graduated to options trading. These traders continue to trade more options than ever before. The market changes and volatility also seem to more friendly to options strategies. A vast number of educators, tools and platforms were launched during the pandemic, fueling the options volume growth.

This leaves us with a very interesting dichotomy where two essential sections of the same retail online market are showing polar opposite behavior. One that may change again depending how we recover from the pandemic.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Options