Retail Trading Activity Here to Stay, Likely to Remain Well Above Pre-Pandemic Levels - Jefferies

June 23, 2021 9:29 AM EDT
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High retail trading activity is here to stay judging by the results of the latest survey conducted by Jefferies.

Their equity analyst Daniel Fannon presents results of the survey, whose goal was to gauge sentiment among retail traders as the economy opens up. In a “normalized” economy, about 70% of respondents said they would either not alter or would increase their trading activity.

“This includes nearly 30% of respondents who said they would actually increase trading by 25% or more. Further, over 40% of respondents are likely to deposit more funds into their brokerage accounts within the next 12 months, all else equal. When posed with a drawdown scenario of -15%, approx. 65% of participants said they would either not change or would even increase their trading frequency. These factors are positive for the sustainability of newfound avg trading levels,” the analyst says in a note.

Higher retail trading activity is seen as a result of a more competitive landscape among brokers, where most now offer zero commissions.

“This impact resonates in our survey as 55% of respondents felt that trading costs were the most important feature when considering a brokerage account (20% also ranked it as 2nd most important). Of note, over 1/3 of our survey indicated they traded cryptocurrencies, of which, over 50% marked it as their most actively traded product. Approx. 86% of these traders added that they would buy more crypto in the next 12 months,” Fannon adds.

The latest data from brokers Charles Schwab (NYSE: SCHW) and Interactive Brokers (NASDAQ: IBKR) shows that trading activity levels have moderated after record Q1 volumes.

“Specifically, we continue to anticipate activity levels to remain elevated from pre-pandemic levels but below that of 1Q21 and 4Q20. Ease of access, improved technology, product innovation (i.e. fractional shares) and low costs are some of the factors that give us confidence around this sustainability. That said, any sustained market pullback will likely result in a wash out of some of the more novice market participants.”

Fannon has also weighed in on the new SEC Chairman Gensler’s plans to make equity market structure better.

“Specifically, the Chairman called out the rise and oligopolization of "off-exchange" wholesale execution (paymnt for order flow), the alleged gamification of brokerage platforms, and dated clearing infrastructures (T+2 vs T+1 clearing) among many other topics. As execution quality on a weighted rank-choice came out as the 2nd most important factor to our survey participants, we will closely monitor potential reforms. Timing and specifics of any regulatory change remain uncertain, but we anticipate ongoing headlines around these and other topics to continue in the short term,” the analyst concludes.

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