Retail Trading: An Analysis of Current Trends and Drivers

44 Pages Posted: 8 Sep 2023 Last revised: 12 Sep 2023

See all articles by Pedro Gurrola-Perez

Pedro Gurrola-Perez

World Federation of Exchanges

Kaitao Lin

World Federation of Exchanges

Bill Speth

World Federation of Exchanges

Date Written: September 15, 2022

Abstract

The participation of retail investors in financial markets has a dual impact, contributing to market liquidity and order book depth while potentially increasing volatility, necessitating robust investor protection measures. The World Federation of Exchanges (WFE) conducted a survey among its members in 2021 and reveal varying levels of retail participation across global exchanges, with higher-income countries generally exhibiting lower retail involvement. The COVID-19 pandemic leads to increased retail activity, attributed to easier market access, lower costs, more research and data availability, and increased free time during lockdowns. However, defining a retail investor varies across markets. Exchanges typically identify them through explicit tags on orders or individual trade characteristics. To attract retail investors, exchanges employ educational programs, new products, liquidity providers, and special fee schemes. Some exchanges noticed differences in retail participant behavior compared to other traders. Our econometric analysis corroborates these findings, highlighting that retail investors react to market conditions, tend to be net buyers during market stress, and show higher participation in countries with higher literacy scores. Strategies like reducing trading fees, capital gains taxes, broadcasting materials, and improving research tools have effectively attracted retail participation in stock markets.

Keywords: Retail investors, financial market, exchanges

JEL Classification: G10

Suggested Citation

Gurrola Perez, Pedro and Lin, Kaitao and Speth, Bill, Retail Trading: An Analysis of Current Trends and Drivers (September 15, 2022). Available at SSRN: https://ssrn.com/abstract=4562259

Pedro Gurrola Perez

World Federation of Exchanges ( email )

125 Old Broad Street
London, EC2N 1AR
United Kingdom
EC2N 1AR (Fax)

HOME PAGE: http://www.world-exchanges.org

Kaitao Lin (Contact Author)

World Federation of Exchanges ( email )

125 Old Broad Street
London, EC2N 1AR
United Kingdom

Bill Speth

World Federation of Exchanges ( email )

125 Old Broad Street
London, EC2N 1AR
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
237
Abstract Views
804
Rank
247,769
PlumX Metrics