The surge in GameStop stock has everyone talking about retail investors. But who are they and why are they all of a sudden wielding so much power?
Let’s connect the dots.
A retail investor is basically anyone who isn’t one of the big boys. We are talking about individual investors who don’t buy and sell securities professionally. They are trading for their personal accounts and often trade dramatically smaller amounts than an institutional investor.
Retail investors often use online services like TD Ameritrade or Robinhood to make their trades.
So why are retail investors all of a sudden front and center?
Well, you can blame coronavirus for that one. All of a sudden, people stuck at home or out of a job decided to step up their investments. And while the professionals sure do like to complain about retail investors, some research shows they may have helped keep markets afloat when the pandemic hit.
According to researchers at the University of Virginia and the University of Zurich, retail investors came to the rescue, when professionals fled the market in February, on a small scale providing liquidity and helping stabilize the market.
But it’s not all positive.
Experts do warn that retail investing is risky with not enough focus on education.
And as we have seen with GameStop, there is concern about retail investors using social media to manipulate the market.
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