(Bloomberg) — Recently, Beyond Meat Inc. saw its shares soar over 1,000% during a four-day surge, only for much of that gain to quickly dissipate. Alongside this, gold prices experienced a historic rise followed by a significant two-day slump. There has also been a notable influx of billions into risky ETFs tracking volatile cryptocurrencies like Bitcoin and Solana.
Today, the influence of individual retail traders is undeniable in the markets. While they frequently buy the dips to maintain price levels, their tendency to rush into trending assets can lead to difficulties for those who join in too late.
A stark reminder of this trend can be seen in quantum computing stocks, many of which have surged over 1,000% in the past year. However, companies such as Rigetti Computing Inc., D-Wave Quantum Inc., and IonQ Inc. have faced consistent declines recently, with drops of over 6% on Wednesday.
Kevin Xu, founder of Alpha, an AI-based trading app, noted that the market has become heavily driven by narratives. As traders discover compelling stories, these ideas spread rapidly and can create significant momentum.
The boom in retail trading began in 2019 with the rise of free trading options, and participation has only strengthened since. Daily trading volumes for US-listed stocks have surged to an average of nearly 12 billion shares, a 75% increase from the previous six years, with even higher recent volumes.
One measure of retail activity is the volume of off-exchange trades, which are forecasted to account for 50% of total trades this year, a milestone. Retail investors consistently demonstrate a pattern of purchasing dips and utilizing options to enhance returns.
The retail trading frenzy extends beyond stocks; ETFs focused on cryptocurrencies have attracted $47 billion this year alone, while those capitalizing on options have brought in nearly $10 billion. Even gold, traditionally seen as a secure asset, is being treated as a momentum play by individual traders.
In navigating these choppy market conditions influenced by retail traders, professionals are urged to proceed with caution. Being mindful of retail flows and exercising restraint is essential, although underlying fundamentals will ultimately dictate market direction over time.
