Financial markets during a pandemic - empowerment of retail investors

When we look back at the financial news surrounding the pandemic, we will see the rise in retail investors during one of the most volatile and turbulent periods in recent history for the stock market. Basically, we witnessed a seismic shock which contributed to a significant increase in activity in the financial markets. This empowerment of retail investors allows for  reap the benefits of long-term cumulative growth that only investments in periods of zero or even negative interest rates can offer. It is also one of the most effective ways to influence our world.

Equal opportunities

Kim Fournais, president and founder Saxo Bank

Nearly ten years of loose monetary policy, endless quantitative easing programs and negative interest rates have had a tremendous impact on the fabric of society and inequality in society. Real estate, private equity and stock exchanges benefited from the support of a loose monetary policy that benefited asset owners, but excluded the vast majority of the population from taking advantage of the boom. Many people feel frustrated because only a privileged elite benefits from world progress; they also feel that their vote in the elections is not having the global impact they expected.

The answers to these questions are complex and multi-faceted, but some of them include more widespread participation in capital markets. The continuing tendency for citizens to take control of their investments is an important step towards a true democratization of financial markets, where people not only gain more control over their financial future, but also engage in companies that have a real impact on our world. 

Surprising increases

The increase in retail investor activity is surprising. According to the latest data, they together account for almost one fifth of the total turnover on the American stock exchanges, and on the days of the highest volatility even for a quarter. Although the pandemic may have contributed to an increase in the number of investors perceiving the boom in the stock market as an opportunity to make a quick profit, the vast majority of retail investors are still gradually taking control of their investments. 

While volatile markets offer many opportunities for more sophisticated investors, they undoubtedly attracted a much larger group of long-term investors who had previously managed their money through banks - many of which charged high and opaque fees with average returns - or budding investors who had previously kept their savings in cash. 

Some are quite arrogant to throw all retail investors together as "money fools" chasing the stock market bubble. However, the opposite is true - retail investors remained calm and invested during the March quick market correction. On the other side, there were many professional fund managers who quickly shed their positions only to then be forced to catch up as the markets rebounded quickly and hit record levels. 

I have had the opportunity to directly observe the enormous global appetite for retail investment as we welcomed over 2020 new customers in the first half of 80. For most of them, the time spent on the market is important - not necessarily the time of taking action on it.

The growing share of retail investors in capital markets is connected with the important role of investment service providers. When the dust settles from the current stock market turmoil, success will be for those who realize that increased retail investor activity will remain so - and not only access to global markets, but also the right tools and content are crucial for long-term investor engagement. analytics and services necessary to make informed decisions.

Retail Investing - More than commission-free transactions

In our opinion, explaining the increase in retail investment with zero commissions, especially in the United States, is an oversimplification. First, the growth of the retail investor segment is a global phenomenon, not just an American one. Second, it suggests that the catalyst here is not paying for investment. Lower fees and commissions are nothing new - in line with a trend that has continued for over thirty years, increasing investment availability.

Three decades ago, the industry was ruled by opaque prices and limited offers, with traditional banks often charging clients $ 100 commission on simple stock transactions with little transparency and ineffective execution. Actions Saxo Bank and other entities changed the status quo in the market, which in turn caused commissions to reach a level at which anyone can invest and trade. 

In the opinion of some commentators, retail investments will fall sharply when the stock market slumps. This may only be true of the few retail investors who have been attracted by the ability to make quick money. For most, the freedom and ability to invest is only the beginning of the road to gaining greater control and influence over their own financial future - and that of society itself.