Do we really think the reduction in trade costs from $10 to $0 is really driving consumer investors to dive in? Or is it the surge in stocks like tesla over the last year that is driving more speculation?
When I opened my first online brokerage account back in the ancient times (2005), the brokerage websites were scary, and lots of stuff still required printing out paper and sending it in.
Even then, trades were still cheap (I was paying $7/trade) -- but the whole process made it feel daunting, and made clicking the 'buy' button feel scary.
Nowadays, buying shares is almost as easy and fun as buying shit on amazon -- and when you couple that with the fact that "everybody knows" that the reason that rich people are rich is because stocks -- it shouldn't be too surprising that everybody is racing to get in to the game.
On top of everything else, we are currently in the longest and best bull market in the history of the public stock market -- which means that we have a big crop of folks that have no personal memory of stocks losing money.
I frequently talk to folks that think that 2015-2016 is what a "scary market" looks like, and also frequently talk to people that remember with fear the "2011 crash". If that's what you think a bad market is like, you're going to be ready to put your last penny in.
I'm also afraid to think about how folks will react to the next crash.
Favorite anecdata is the froth around the reddit user WSBGod, which pushed that crazy sub to near the top of /r/all and seems to have potentially given birth to another bitcoin-esque HODL guru.
When it's an app, and you can do it all from your couch, maybe that makes it worth it.
But if you can suddenly invest 100% of that $100, then it's far more worth doing.
The article cites some random blue-collar worker who makes a good point: trade costs mean you're paying basically 7% in fees on smaller stuff, which is what most "Mom and Pop" investors can afford. Nobody wants to do that.
It doesn’t really make much of a difference to people trading ITM options or hedging, but speculation is much cheaper now.
Edit: With SPCE, PLUG and perhaps TSLA, it was retail long call option buying that forced the MMs to buy the underlying to hedge, forcing the price further upwards which made more people buy calls which lead to MMs buying more shares to hedge. Eventually the buying stops, as we’ve seen with TSLA and SPCE. At one point during TSLAs parabolic rise, 1.8 TSLA calls were trading for every 1 SPY call. SPY usually has the highest option volume, since it’s the most liquid ETF. Option markets have a lot of influence over the price of the underlying.
[0] Meaning your order flow is sold to market makers, and you might get a slightly worse fill
You can try your hand at paper trading, thinkorswim by TD Ameritrade has paper trading, and you just need a token deposit of a few bucks to open an account which includes paper trading.
As long as rates stay low, all kind of asset classes will experience capital inflows and thus higher asset pricing.
Having money in the bank is just stupid for average people, and they've found out about it.
I do think small investors will be more likely to actively manage their investments, though, which is against most of their interests.