Young and restless in US stock market

Novice traders are pouring into the market, sharing tips on social media platforms such as TikTok

Retail trading in the United States now accounts for roughly 22 per cent of all trading volume, according to Piper Sandler, a financial services firm.
Retail trading in the United States now accounts for roughly 22 per cent of all trading volume, according to Piper Sandler, a financial services firm.PHOTO: REUTERS

(NYTIMES) - Last year, Ms Kiersten Crum, 21, was a stock market novice.

The pandemic had forced her college classes online, her father's bar was temporarily closed and she started working at a grocery store to earn extra cash.

With US$500 (S$667), she bought shares of the Carnival cruise line, her first foray into stocks.

Now she has a five-figure stock portfolio, she is in the middle of a gap year to focus exclusively on trading. And her online presence - be it on Twitter or TikTok - is fully turned over to what she calls her stock market obsession.

"I started teaching myself as much as I could," said Ms Crum. "Any terms I didn't understand, I wrote down on a list," she said. "I treated it as school."

Newbie investors have been pouring into the market for more than a year now.

Robinhood, the no-commission brokerage pioneer, recorded millions of downloads of its app even before GameStop and other meme stocks took off in January.

Charles Schwab added 866,000 retail customers last year, up 81 per cent from 2019.

More than half were younger than 41, and the new customers are funding their accounts with more modest amounts of cash. And Fidelity said new accounts increased 17 per cent last year, with more than one-third of the growth from people 35 and younger.

Although the frenzy that surrounded GameStop was stoked in part by the Yolo (you only live once) attitude of many novice traders, it also obscured an important fact: Some of them are quite serious.

There is a contingent taking a long view, building portfolios meant to last. Others are more active - day-trading in and out of stocks quickly based on price patterns, or swing trading by holding positions for anywhere from a day to a couple of weeks.

Many use technical analysis, keep close watch on different sectors of the market and take cues from investment managers like Ms Cathie Wood, who has achieved a cult-like status.

Taking an active approach is still risky, of course. Studies have shown that retail traders generally tend to lose money, and even professional money managers do not beat the broader market over time.

And young traders have sometimes taken on more risk than they can handle, with disastrous results.

But traders like Ms Crum are making an earnest effort to do it right.

Every night, she meticulously compiles a list of the stocks she is watching, using different measures.

One of them, an online tool called a volume scanner, filters out stocks that are being traded more or less than usual, which she believes can tip her off to a good bet.

And she tries to mitigate her risk: She uses stop-loss orders, to sell a stock when it hits a certain price, and limit orders, which let investors set more specific instructions.

Like many other young traders, she is big on sharing what she learns - usually in TikTok videos to her 163,000 followers.

Like other young investors, she is riding a wave that would not be possible without the widespread adoption of commission-free trading in late 2019, which threw open the doors to those without deep pockets.

Retail trading now accounts for roughly 22 per cent of all trading volume, according to Piper Sandler, a financial services firm, up from 13 per cent a year ago, when overall volume was also lower.

"There are days when I make 100 trades or more," said Mr Dan Knight, 26, a day-trader who co-hosts a podcast about the stock market. "I would have never been able to trade with US$7 commission fees."

The financial world is reckoning with what to make of it. Businesses are rethinking how they reach shareholders, trying new methods to connect with a younger demographic, like gatherings on the Clubhouse app and podcast appearances. And academics warn that these traders have the potential to make the market more erratic.

The expanding universe of Discord servers, Twitch streams and TikTok trends means popular ideas can be quickly amplified, drawing traders to focus on a smaller collection of stocks - a recipe for more volatility, often followed by poorer returns in certain segments of the market.

The surge of new investors is typical of bull markets, said Professor Brad Barber at the University of California, Davis, whose research includes investor psychology and online trading. "It's more of the same, but on steroids," he said.

It is possible that some traders will become less interested as their offline lives resume more fully, but their mettle may really be tested when the market runs into its next downturn.

"That is what will separate those who are truly interested in the market and those for whom this is a hobby," said Mr Douglas Boneparth, a financial planner in New York with a large social media presence.