Online trading in 2022: Momentum seen ebbing after Covid-frenzy

Here’s how our analysts at BrokerChooser, a global broker comparison website, see the current state of the online retail trading market and trends unfolding in 2022. 

  • Beginner investors flooded the markets last year and they are here to stay.
  • The brokerage industry has slowed down significantly by the end of 2021, reaching pre-Covid levels, although online brokers’ revenues and profits remain high.
  • Retail investors will remain the main driver of the online market, even though new account openings are decreasing.
  • Cryptocurrency will remain one of the key stories to watch in 2022, as it is expected to stay massively popular with investors, although more regulation is likely coming.
  • In 2022, retail investors will continue to be highly active, while interest rate hikes, inflation and looming threats – such as increasing energy prices, emerging new variants of Covid and a Chinese real estate bubble – could endanger any post-lockdown recovery, while also creating opportunities for traders.
Online trading in 2022: Momentum seen ebbing after Covid-frenzy

The biggest stories in online trading in 2021

At BrokerChooser, we believe the following were the biggest stories of 2021 in trading:

The Gamestop stock frenzy 

A massive number of retail investors took on big money and big influence in early 2021 to make a point that startled everyone, including the stock market. The Gamestop frenzy was triggered by a Reddit thread where users teamed up to prove that despite the massive short positions on Gamestop stock, the company is worth more, and started buying call options and long positions.

More and more people joined in, causing a meteoric rise in Gamestop’s stock, which generated media interest and interest from new clients. The immense surge of new clients caused some brokers, such as Robinhood, to shut down, which led to a backlash from retail investors and scrutiny by regulators. Retail investors drove the increase in new accounts during the pandemic, but in the second half of the year account openings slowed down. 

The Gamestop short squeeze and the increasing gamification of the stock market highlighted one of the most interesting phenomenons of 2021: meme stocks. These are stocks that suddenly gain popularity among retail investors through social media or online forums like Reddit. This traction leads to sky-high prices and unusually high trading volumes, which generally have nothing to do with the company’s performance but rather an online hype frenzy that more resembles gambling.  

Robinhood goes public 

Robinhood’s was one of the most anticipated and popular share issuances of 2021. It came on the back of the Gamestop controversy and with regulators zooming in on the popular trading app. BrokerChooser analysts dug deep into our database and found that Robinhood’s customer base is three times larger than that of the other brokers included in our survey. Robinhood’s customer base is growing more than three times faster than the average growth rate at other brokers. 

On the other hand, Robinhood customers have 40-50 times smaller sums on their accounts than clients at other brokers, although client asset value is growing fast, with the growth rate the highest among all brokers. Robinhood’s revenue grew at the fastest pace as well, more than three times faster than the average of all brokers. 

The controversial payment for order flow (PFOF) arrangement is at the core of their revenue, which has come under scrutiny: regulators worry that most of the trading volume is handled by a few firms that have too much influence on the market.

Biggest broker fines of the last two decades

Brokers are supposed to be transparent and fair, but what happens when they are not? In 2021, Robinhood was hit with a $70 million fine by the Financial Industrial Regulatory Authority (FINRA), the largest fine ever handed down by the agency, for inflicting “widespread and significant harm” to customers by providing them with false information about their investments.

Analyzing data from the last 20 years, BrokerChooser revealed that the second highest fine, $52 million, was paid by Ally Invest in 2016 to the US Justice Department, for its subsidiaries wrongly selling subprime residential mortgage-backed securities. The third largest fine, $48 million, had to be paid by CITIC Securities, which was among three big brokers in China that were heavily fined in 2017 for their role in the 2015 stock market crisis.

Our analysis showed that just under a third (30%) of the brokers in our database have been fined. While the fines listed here are hardly pocket change, brokers are usually much smaller companies than banks, which are generally hit harder by penalties.

It’s a man’s world – Who are the new online retail investors? 

As mobile trading apps and zero-commission brokers have become more and more popular, we wanted to know who is actually investing and from where. 

BrokerChooser’s analysis found that the online retail investor world is predominantly male. Male users outnumber female users in every single country around the world, with the global split among investors being 76% male to 24% female.

However, this gender gap isn’t quite as wide everywhere. The Philippines has the highest percentage of female investors, at 44%. In terms of age, the relative majority (39%) of investors are between 25-34, while just 5% are 65 or over. When it comes to device preference, investors are almost evenly split between using desktop computers (49.1%) and mobile phones (48.8%) to invest, with just 2.1% using tablets.

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