Analysis: Financial literacy or luck? The year small traders made a big impact

LONDON/NEW YORK, Dec 28 (Reuters) – In May, San Diego-based Emily was feeling good after a year of double-digit gains from stock trading. Stock options, which some other stay-at-home investors were venturing into, would boost her returns, she decided.

Emily was among the army of retail investors who rocked stock markets in 2021. Some made fortunes pulling hedge funds out of short positions in so-called “meme” stocks such as retailer GameStop and movie theater group AMC Entertainment.

But AMC turned out to be Emily’s downfall. As her shares hovered around $15, she began selling “naked call options” that allowed holders to buy underlying shares from her at a pre-agreed price. Instead of falling as expected, however, AMC’s stock exploded.

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Naked options meant that Emily didn’t actually own the shares. When AMC shares hit $72.62 on June 2, the margin calls began — essentially a request for money to top up its brokerage account.

“I was on the phone with the margin team at (brokerage) TD Ameritrade, telling them to give me more time…but it was either I sold it or they sold it,” she said. Eventually, she said she liquidated her portfolio, losing $670,000.

AMC overvoltage

Emily is not the trader’s real name but she provided documentation confirming her identity. Reuters could not independently verify the extent of its losses, but reviewed brokerage statements showing it had written large call options on AMC and other stocks in May.

“It was very devastating. I couldn’t sleep,” Emily said. Having left her job in human resources at the end of 2019 to go into business full-time, she now works as a delivery driver.

His story is a cautionary tale of what can happen when booming markets entice inexperienced investors to risk it all.

But for every Emily, there’s a small trader who rode this year’s stock market boom, boosted by the economic recovery, central bank money printing and government cash handouts.

TD Ameritrade, the broker Emily uses, says that with broker Schwab, he added six million new accounts this year.

Conditions were favorable for retail even before the pandemic, as new mobile platforms allowed individuals to buy shares, or fractions of shares, for little or no commission.

“Everyone can have their piece of the pie,” said Ben Phillips, a 30-year-old London-based pilot who started trading in 2019. He calls himself a long-term investor, but also day trades “for have fun, a little game”.

The retail surge was the “main reason” global demand for equities hit $1.1 trillion this year, said JPMorgan strategist Nikolaos Panigirtzoglou.

“Acting like momentum traders, retail investors will most likely continue to propagate the stock markets, at least for the year ahead. They will have no alternative as interest rates will remain close to 0%,” he added.


Retail, unlike the meme craze, seems unlikely to fade.

U.S. retail traders have purchased $281 billion net of U.S. stocks so far this year, compared to $240 billion in 2020 and $38 billion in 2019, according to Vanda.

Many have moved into stock options, boosting US volumes by more than 40% from 2020, analyst firm Trade Alert estimates.

They also account for up to half of trading in individual stock options – bets on individual stocks – according to JPMorgan. This, in turn, has pushed these options’ share of total options volumes to a record high this year, according to Reuters analysis of Trade Alert data.

Stock options

The retail frenzy is most pronounced in US markets and even popular platforms in Europe say traffic is generally highest at US companies such as Tesla, Nio, Apple, Amazon and GameStop.

But the trend is growing.

Russia’s Moscow Exchange says 26 million retail accounts are registered there, four times more than at the start of 2020, and the exchange and brokerage Tinkoff plan to extend trading hours, including on weekends. -end.

In India, 19% of trade in November was done by mobile phone – a barometer of retail activity – according to data from the Bombay Stock Exchange, compared to 7% in November 2019.


Growth in business activity has slowed, perhaps because central banks are signaling that higher interest rates are ahead.

Online brokerage platform eToro, which has two-thirds of its customers in Europe, recorded 106 million transactions in the third quarter of 2021, half of the first quarter total, although well above the levels of 63 million from the beginning of 2019.

Meager returns elsewhere persuaded Phillips, the pilot, to start trading in late 2019.

While his Tesla holdings were hit hard by the March 2020 selloff, he bought more after watching YouTube videos where traders advised watchers to “buy the dip”.

The subsequent rebound quadrupled Phillips’ initial outlay of 15,000 pounds ($20,100), he said, but he has no plans to sell, citing his “10-year conviction” against You’re here.

Others, like Dan, a 24-year-old student from the north of England, caught the trading bug through “boredom” and reading online chat rooms such as “WallStreetBets” which drove up the odds. meme stocks.

Asking that his full name not be used, Dan says he made four times his £1,000 investment in GameStop, although friends who arrived late lost money.

He has since quit day trading, calling it “lucky”, but invests in stocks through a UK savings account. The experience “helped me to be more financially educated,” he added.

Emily, the California trader, is also still trading, but in smaller volumes.

She hopes to one day replenish her portfolio.

($1 = 0.7454 pounds)

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Additional reporting by Andrey Ostroukh in Moscow Editing by Sujata Rao and Mark Potter

Our standards: The Thomson Reuters Trust Principles.

Sarah J. Greer