As the S&P 500 and Dow Jones Industrial Average indexes surged to record highs in November, new data from TheStreet.com shows it’s not just the fat-cats on Wall Street who are pocketing the windfalls. The little guys – retail investors – are cashing in too.
Watch the video below to see why one TD Ameritrade strategist says retail investors are getting smarter:
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Monthly data from three major discount brokerage firms, TD Ameritrade (AMTD) , E*Trade and Charles Schwab (SCHW) , shows trading activity from retail investors surged year-over-year in both September and October. Daily average revenue trades, or DARTs, climbed 8.2% in September and 17.8% in October on a weighted average basis.
The number of revenue trades rose across the board among the three brokerages, with TD Ameritrade and Charles Schwab posting the biggest gains. In October, TD Ameritrade reported 494,000 revenue trades, up about 18% from the same month a year ago, while Schwab’s revenue trades jumped 20% to 590,487 trades. E*Trade recorded 175,447 trades, up about 10% from October 2013.
"This is the first time since at least 2009 where there has been two consecutive months of positive year-over-year trading growth," following the summer lull, said Jonathan Gerstein, director of Analytics and Consumer Insight for TheStreet. Gerstein compiles monthly data from the three brokerage firms to produce weighted averages.
For Schwab, October’s data was the highest monthly volume seen in at least six years.
J.J. Kinahan, TD Ameritrade’s chief strategist, said retail investors have been cautiously returning. "Our clients were ankle-deep into the market two years ago, then they went knee-deep, and now they’re up to their waist," he said.
All of this means investors are in the markets, actively trading. "Trades don’t necessarily mean people have faith and are buying – they’re selling as well," cautioned Gerstein, who recalls high trading volumes during the selloff of 2008. Still, the data indicates retail investors aren’t missing out on the bull market, despite its volatility.
Many small investors, who were burned in the 2008 financial apocalypse, have gotten smarter in the way they trade. A number of these investors are using options like the pros. Kinahan said 41% of TD Ameritrade’s daily trades in October were done through derivative-type trades, which consisted primarily of options. Whereas, only about 17% of daily trades involved derivatives prior to the 2008 recession, he said.
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