It is no secret that since March’s deep dive the stock market has been acting in mysterious ways. It has never been clearer that the stock market and the economy don’t necessarily move in conjunction. Part of the reason for this is the growing sway of stay-at-home traders that have started to eclipse other influences in equities.
By late April, it was estimated that around 4 million new traders had joined stock market. These millions moved volumes rarely seen in the stock market, and as a result, Wall Street analysts have taken to creative ways to figure out what young amateur traders are looking at. One of the ways they have been doing this is by canvassing Reddit threads like r/wallstreetbets to try to gain an edge.
Alternative data influencing the market has been a buzzword for years, but demand for it has exploded in 2020. At first it was Covid-19 infection charts and travel and dining trends. Now it’s intel on what retail investors are doing with their cash. It may seem strande, but their heft in markets has grown, and individuals have morphed into a force Wall Street can’t afford to ignore anymore.
Quincy Krosby, chief market strategist at Prudential Financial, explained that “when you see episodes in the market, heavy bouts of buying or selling, it’s important to know where they’re coming from and why”. Krosby checks sites like Twitter.com often to gauge retail trends. “Ultimately, retail investors have an effect on the market.” Lured by zero fees offered and bored at home, retail investors have flocked to the market and now account for 20% of equity trading, according to Bloomberg.
Ben Eifert, chief Investment officer of QVR Advisors, explained that Reddit, with its 1.5 million users, has “influencers within that community that will say, ‘Alright, today we’re buying the Tesla $2500 calls for next Friday,’ and the volumes that will print are huge…and you better believe the most sophisticated options traders in the world are focused on this flow and predicting it in real-time”.
Ponczek, S. (2020, September 15). Wall Street and Big Investors Are Dying to Know What Amateur Traders Are Doing. Retrieved September 15, 2020, from https://www.bloomberg.com/news/articles/2020-09-15/big-investors-are-dying-to-know-what-the-little-guys-are-doing