According to JP Morgan, traders accounted for up to 23 per cent of total retail volumes last year, just ahead of the 22 per cent in 2022.
Nasdaq Data Link has tracked more than US$30 billion trades a day from retail traders in a market comprising more than 9500 US traded stocks, American Depositary Receipts and exchange-traded products.
Nasdaq said self-directed individual investors have emerged as significant market participants, demonstrating time and time again they have the power to move markets.
The GameStop and AMC meme-stock craze of 2021 announced the arrival of the retail trader. GameStop’s share price shot up due to the support from traders on social media platforms like X (formerly Twitter) and online forum communities like Reddit. Suddenly retail traders had power and influence at levels not seen before.
Forbes has estimated that more than US$20 trillion of retail assets exist in more than 100 million brokerage accounts.
CMC NZ, which provides two online trading platforms and access to more than 12,000 CFD products, has more than 5000 clients and offers institutional technology solutions to other brokers
Investors want the best technology with CMC reporting 60 per cent of clients using mobile platforms.
The contract for difference (CFD) allows traders to speculate on future market movements without actually owning or taking physical delivery of the asset.
The traders have the choice of foreign exchange (forex), sharemarket indices, individual shares, exchange-traded funds, commodities, government bonds and notes (treasuries) and cryptocurrencies.
Smith says “Our clients now have a global lens on investing. They want the flexibility and ability to make long or short-term investment decisions in different asset classes.
“A typical client is aged 30 to 60 years, is a business owner or semi-retired, has a passion for reading and watching financial markets, and wants to express a view on the direction of the markets,” he says. “They want to gravitate to sectors that are showing volatility and not just stick to the traditional markets.
“The majority are speculating with a shorter to medium-term outlook and some are using the platform for hedging purposes. They can buy down to one share or one barrel of oil in fractional trading. They can trade 24 hours a day when the markets are open.”
Smith says CMC provides a risk management tool that sets stop losses or gains on positions. “If clients refuse to put a stop-order in place, then the system will close the position if levels are breached.”
In a recent survey, CMC found the top five traded CFDs were shares, 52 per cent; forex, 44 per cent; cryptocurrency, 42 per cent; exchange-traded funds, 36 per cent and commodities, 33 per cent.
On intending to trade, shares again came out on top with 54 per cent, cryptocurrency, 48 per cent and forex, 43 per cent.
The top two motivations for investing were “building wealth for retirement” and “having a passive income stream.”
Smith says clients are still interested in New Zealand shares but they want access to international markets because it’s easier to buy and sell.
“Locally, there is a two-day settlement with the need for a shareholder number and pin. Internationally, buy and selling is done on a custodian platform and settlement occurred the same day. In 2024 you can’t have a portfolio that is one dimensional; it has to be globally diverse.”
Smith says the New Zealand market has been lagging because “it doesn’t have the sexy tech listings like the United States and is lacking exciting new opportunities. We have gone through a period of disappointing initial public offers (IPO) and this has hurt investor appetite.
“The market needs the confidence of a couple of big listings, and less companies being taken over. The battle against term deposits is high on investors’ conversations.
“The market needs the signal from the Reserve Bank that interest rates are coming down. Once that happens, then investors will look ahead to dividends providing attractive capital growth,” says Smith.
He says trading the NZ and Australian dollar is high on clients’ lists. “I think it comes back to our background of importing and exporting and people watching the currency all the time. The NZ dollar is very volatile. A lot of the activity occurs around (central bank) interest rate decisions. We are a small country with quite high interest rates and the dollar is always driven by what happens in other countries.”
Smith says artificial intelligence (AI) will play an increasing role with robo advice and analysis of financial markets. “No doubt AI will find incredible ways of tracking patterns in the markets and providing investor strategies.
“AI may just take the human emotion out of investment decisions. I’ve been involved with investing for 25 years and the human emotion hasn’t changed — fear and greed drive the markets.”
Smith says the rise of technology and competition has benefited the retail investor by reducing the cost of entering the market and having access to international products — “it’s never been easier buying Apple shares on the mobile phone.”
CMC
CMC charges a 0.10 per cent commission or a minimum $7 fee on the buying and selling of trades.
The retail traders are spoilt for investment options:
· 348 forex pairs including 35 NZ dollar crosses and 12 indices
· 116 sharemarket indices based on cash markets and forward contracts
· More than 9200 shares from exchanges in 23 countries and 28 thematic share baskets
· More than 1000 exchange-traded funds
· More than 120 commodity products comprising precious metals, energy and agricultural
· 14 cryptocurrency markets
· More than 50 stable treasury bills.
CMC was founded in 1989 by London forex trader Lord Peter Cruddas as a currency management consultant. Over the years CMC has grown into one of the largest online trading brokers worldwide and is listed on the London Stock Exchange with a market value of NZ$1.66b.
CMC Markets is an advertising sponsor of the Herald’s Capital Markets report.
