Day Trading Picks Up During Lockdowns
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What is the main topic discussed in this episode?
Here's your Money Briefing for Monday, July 27th. I'm Charlie Turner for The Wall Street Journal. What to do during the coronavirus lockdowns?
What is driving the surge in day trading during coronavirus lockdowns?
Many Americans are taking up day trading in hopes of making some quick cash.
The fact that there is the cost of entry into this is zero, that you can just buy and sell stock and whatever you gain, you gain, and whatever you lose, you lose. You don't have to worry about any of the fees. That's been one of the biggest draws.
That's our markets reporter Mike Worsthorn. Coming up, he'll talk about Americans' growing appetite for day trading and the risks that come with it. That's after the break.
The pandemic lockdowns have left many Americans stuck at home with nothing to do. So millions of them are sitting in front of their computers or pulling out their phones and trading stocks. It's called day trading and it hasn't been this popular in a long time. Our markets reporter Mike Worsthorn is here to tell us all about it.
How is day trading defined and how does it differ from long‑term investing?
First, Mike, tell us exactly what day trading is.
Day trading is a more aggressive form of investing where those people are trading in and out of stocks on a daily basis. They're not holding anything long term and flies in the face of sort of the principles that Warren Buffett, Jack Bogle, and other investing titans have encouraged investors to do over the years just for the simple fact that – Longer term investing tends to show better returns versus investing in and out of stocks on a more frequent basis. You know, all that said, investors are keenly fixated, though, on sort of the quick money grab that they may be able to take advantage of with the market conditions right now. And how popular is day trading now? So there's a few different ways to look at this.
But one of the way there's a really interesting data point that Citadel Securities, it's a market maker and it handles about 40 percent of all market orders on a day to day basis. But they're seeing that this year so far, retail investors, so that would include day traders and just any other individuals that are trading right now. They're taking up about 20 percent of overall market activity.
How much has retail trading activity increased in 2020 and what data shows it?
throughout 2020 this year. That compares to 15% at the end of December 2019 and the historical average of around 10%. Now on some of the really busy days that the market has seen so far, such as in March, and there's been a number of busy days in April, May, and June, that activity amongst retail investors can actually reach 25%. And those are numbers that Citadel told me they've never seen before.
So why has day trading become so popular right now?
What's the appeal? So the sort of the foundation for this has been laid over the last several years. The most crucial thing that several people have pointed to, including the investors that are doing this themselves, is that trading is free for the most part now. You can buy and sell a stock and not pay a commission at places like Charles Schwab, E-Trade, TD Ameritrade, and of course some of the newer apps that actually started this, Robinhood in this instance. So that alone, the fact that there's The cost of entry into this is zero. That you can just buy and sell stock and whatever you gain, you gain. And whatever you lose, you lose. You don't have to worry about any of the fees. That's been one of the biggest draws.
The second motivating factor is that trading is easier than ever now.
Why have commission‑free apps and mobile platforms made day trading more accessible?
You can do it on your phone. Just in the same way that in the 90s, the advent of the internet and the personal computer gave way to the day traders then. Mobile phones and the fact that you can just download an app and trade at the click of a button has opened up trading to anybody that just has a smartphone in their hands. The third point I would say is that you're seeing a lot of people trying to take advantage of the volatility.
What role did Robinhood play in popularizing retail day trading?
We had this historic end to the longest bull market ever. It happened in very dramatic fashion in the sense that that the drop into bear market territory for the S&P 500 was the fastest on record. And the bounce back has been just as extraordinary with the S&P 500 rising more than 40%.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:06–0:14
2
What is driving the surge in day trading during coronavirus lockdowns?
0:14–1:05
3
How is day trading defined and how does it differ from long‑term investing?
1:05–2:10
4
How much has retail trading activity increased in 2020 and what data shows it?
2:10–3:22
5
Why have commission‑free apps and mobile platforms made day trading more accessible?
3:22–3:45
6
What role did Robinhood play in popularizing retail day trading?
3:45–4:11
7
How do retail traders actually get started and what rules limit frequent trading?
4:11–5:53
8
What are the major risks of day trading, including stock and options pitfalls?
5:53–10:40
Speakers
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