One of the most striking phenomena of 2020 and early 2021 has been the rise of retail investors, who became more savvy and self-educated during the pandemic. And the trend is here to stay, according to several trading platforms’ executives GOBankingRates has talked to.
The constant flow of enormous events gave rise to a once in a lifetime investing opportunity, which changed the retail trading landscape. As such, retail investors felt encouraged to take control of their finances and get back a sense of ownership for their future and retirement.
A recent Schwab survey says that amidst a global pandemic, economic uncertainties and market volatility, a new generation of investors is born as 15% percent of all current U.S. stock market investors say they first began investing in 2020, according to a new Schwab survey. Schwab refers to this new group of investors as “Gen Investor,” (Gen I) and says that with found time and unprecedented change, “Gen I buckled down and started investing to build an emergency fund and gain an additional source of income.”
“We’ve seen tremendous growth and engagement among individual investors over the past year as a result of lower trading costs, new products and services aimed at greater ease and accessibility, and the investing opportunities presented by market volatility,” Jonathan Craig, Charles Schwab senior executive vice president and head of Investor Services said in the study.
This trend, combined with a rising interest in cryptocurrencies, triggered several trading platforms to ride this wave rather well. Several increased their customer base and has led to current or upcoming IPOs for Robinhood, Coinbase and eToro.
Yoni Assia, CEO and founder of trading platform eToro, talked to GOBankingRates about this phenomenon, shortly after having announced that the company plans to become publicly traded.
Last month, eToro signed a business combination agreement with FinTech Acquisition Corp V. which is a special purpose acquisition vehicle (SPAC) listed on the Nasdaq exchange under the ticker symbol FTCV. The company is expected to have an estimated implied equity value of approximately $10.4 billion at closing.
One of the key differentiators of eToro is that it offers users several asset classes to invest in– from commission free fractional stocks, through to ETFs, commodities, currencies and crypto–and most importantly, it enables its users the ability to “copy” successful investors and be copied yourself.
“We understand that some people lack the time or experience to use traditional methods of online investing or trading. Copy is the system which allows a user to copy trades executed by another eToro user,” Assia explains.
Assia tells GOBankingRates that while it is hard to describe any company as being “helped” by COVID, 2020 was an exciting year for eToro, as it added more than 5 million new registered users and generated gross revenues of $605 million.
Momentum has accelerated in 2021 as the company has added 1.2 million new registered users in January alone and it now has more than 20 million registered users globally.
“We are witnessing a conﬂuence of circumstances driving the rise of retail investors — the acceleration of digital technologies–supported by COVID19– commission-free stock investing, and low or zero interest rate environments are all playing a part. We think that this trend is here to stay, and eToro welcomes and celebrates the rise of the retail investor,” Assia says.
The sentiment is echoed by Steve Ehrlich, CEO of crypto trading platform Voyager Digital, which went public in 2019 on the Canadian Securities Exchange and the OTCQB. Ehrlich was the CEO of E*Trade Professional Trading, and co-founded Voyager with Oscar Salazar, a founding architect and former CTO of Uber.
“The rise of retail investors is a good thing, as it’s an indication of how everyday people are taking control of their money, expanding their financial literacy, and looking for more ways to grow their wealth,” Ehrlich tells GOBankingRates. “It gives more people the chance to have access to financial systems that traditionally benefited accredited investors and institutions. Today’s fintech platforms offer the retail investor easy-to-use investing platforms at a low cost. On top of that, crypto trading specifically opens up a whole new world of opportunity for the everyday investor with a new asset class of investment vehicles.”
Ehrlich adds that the pandemic caused millions of Americans to work from home, and ushered in a new wave of digital employment and investing as an alternative income source. “This coincided with Bitcoin’s rise and led to an exponential expansion of Voyager’s user base.”
Since the start of the pandemic, Voyager has grown to more than 1 million verified users from 80,000 as of March 31, 2021. The company, with $2.4 billion in assets under management, has also seen its market cap reach $3.5 billion, from $13.5 million year-over-year, a 26,000% increase.
“Both retail investors and institutions are starting to see crypto’s substantial value and potential to transform the way we trade and transact, and these realizations were definitely accelerated by the pandemic,” he says.
Asked about his thoughts on cryptos, Assia says that eToro, which was the first regulated brokerage in Europe to offer bitcoin back in 2013, has since “significantly expanded our crypto offering and we continue to innovate in this space.”
Assia adds that while the company is a big believer in crypto and the blockchain technology that underpins it, it is still very early days for “cryptossets” and they remain highly volatile. “Investors should hold crypto as part of a diversified investment portfolio and be aware of the risks,” he says.
Voyager’s Ehrlich says he sees Bitcoin continuing to soar and a steady adoption both on the retail and institutional fronts, aided by inflation concerns rising around the U.S. dollar due to the recent and ongoing stimulus packages.
“It’s also now receiving global acceptance as a legitimate store of value, i.e. digital gold,” he says, adding that leading companies are adding Bitcoin to their balance sheets, signaling an increasing utilization of Bitcoin not just as a store of value but also as a form of payment.
“As a recent example, the Oakland A’s began accepting Bitcoin as a form of payment for suite tickets, and Voyager became their first buyer for a full-season suite using Bitcoin. Moving forward, we believe crypto payments will become more mainstream and widely accepted. People in general are growing comfortable with trading and transacting with Bitcoin and cryptocurrencies. We also believe Bitcoin’s price and volatility will stabilize and its market cap will grow,” he says.
While trading platforms have benefited from the rise of retail investing and a soaring interest in cryptos, the other side of the coin is that some of them have faced intense criticism in the past months.
Robinhood, for example, which has submitted a registration with the Securities and Exchange Commission to file for an IPO, according to a company blog post last month, has faced backlash after it had halted trades of certain stocks in January.
The market frenzy that ensued when the app halted trading of certain stocks popular on the Reddit subthread r/WallStreetBets, including AMC and GameStop, led to CEO Vladimir Tenev having to testify before Congress. The app is now not only facing a slew of lawsuits, but increased scrutiny by key financial regulators.
Asked about these events, Assia says that he believes that the increase in retail participation is a positive force for good in capital markets and that the public should have a say in public markets.
“It is not without its risks and some assets are very volatile at present. We continue to educate our users on the importance of diversification, urging investors to be cautious and to not simply invest in a stock just because it is going up,” Assia says.
“In January, in response to market volatility around Gamestop and a number of other stocks, we made some changes to how a number of stocks including GME can be traded on eToro including disabling the ability to open entry and exit orders on these stocks when the market is closed, and only offering these stocks at 1x i.e. you cannot trade them using leverage,” he explains. “We made these changes as eToro needs to work within the bounds of liquidity available on the exchanges on which these stocks are listed. GameStop (GME) has been, and will continue to be, available for trading on eToro if it is supported by the exchange and our liquidity providers.”
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