Retail Investing Peaks In 2023: How Small-Time Trading Matured From Meme Stock Frenzy

In 2023, retail investors made a comeback.

The stock market was flooded during the COVID-19 pandemic by a wave of novice investors, attracted by stimulus checks, extra free time and the new possibilities granted by mobile trading platforms.

Approximately 30 million new brokerage accounts were opened between 2020 and 2021 in the U.S. alone. While some of these investors left the market once lockdowns were over, a large share of them stayed and recent data shows they've invested in record levels during 2023.

Although millennial-preferred trading platforms such as Robinhood Markets Inc HOOD lost a big share of users between 2021 and 2022, many young investors migrated to legacy brokers like Fidelity, Charles Schwab Corporation SCHW and its subsidiary TD Ameritrade, with new knowledge and experience about the market's ups and downs.

By mid-2021, retail investors accounted for about 10% of the market's trading volume; a big drop from the 15% reached in September 2020, when pandemic-related lockdowns and checks were at their peak, according to Reuters.

In 2022, the average daily trading volume in U.S. stocks coming from retail investors was even lower than in 2021, reaching $13.8 billion against $14.2 billion the previous year.

Yet retail trading picked up in 2023. By February, average daily trading volume from the retail cohort reached a peak of $1.51 billion, beating every other historical peak, including those reached during the heights of COVID-induced trading.

According to a Gallup survey, the percentage of Americans holding stocks has risen consistently since the pandemic, and currently amounts to 61% of the population. It continues, however, below levels seen before the 2008 financial crash.

A recent report by investment firm Public used the platform's trading data to analyze the behavior of retail traders.

Public's investors followed a trend of diversification into different asset classes this year with AI-thematic ETFs seeing a major boost in interest following the recent AI boom. Asset class diversity among retail investors rose by 25% on Public.

The ETF share of the total trading market also grew in 2023, showing a shift away from single-stock investment into more traditionally safe strategies in light of the political and economic volatility experienced of recent times.

In the past three months, the top three ETFs by trading volume were ProShares UltraPro Short QQQ ETF SQQQ, ProShares UltraPro QQQ TQQQ and SPDR S&P 500 ETF Trust SPY.

In a recent exclusive for Benzinga, Katie Perry, general manager of IR innovation at Public, said retail investors are detaching from the meme-stock investor stereotype and growing into a more mature profile.

Fixed-income investments such as bonds and stocks that give dividends became a new preference of this cohort, who's looking to build a less risky long-term investment strategy.

Illustration made with Midjourney AI.