Francesca BenincasaIn recent years, the macroeconomic landscape has significantly influenced investor sentiment, characterised by various risks and tensions in financial markets. Key factors include rising inflationary pressures linked to the Covid-19 pandemic and increasing interest rates from global central banks. However, these were not the sole contributors to market volatility. Persistent geopolitical tensions have also affected the economic growth of major world powers, resulting in production slowdowns due to escalating energy and raw material costs and supply chain disruptions. Such developments have heightened uncertainty among market participants.Loris BuscainoIn this dynamic context, retail investors have enhanced their market presence, continuing the upward trend that had an acceleration around four years ago with the pandemic’s onset. Despite a slowdown in growth, retail flow maintained a significant role in financial markets throughout 2023. In the early months of the year, US retail investors accounted for about 15% of total US equity market volume, trading around $1.5bn daily1. The bond market similarly benefited from small investor participation, generating an average daily notional value of $1.1tn and approximately a 20% increase from 20222. US Treasury securities saw an 11% increase, with an average daily volume of $760bn, while corporate bonds rose by 20%, with an average daily volume of $42.5bn3.The rise in volatility, the movement of high-growth tech stocks and interest in innovative digital assets have stimulated retail investor participation in financial markets, with a particular focus on alternative assets. Despite the reduced enthusiasm for the cryptocurrency market compared to previous years, many retail investors still consider Bitcoin, Ethereum, and other digital currencies as investment opportunities. This trend became evident in 2020, when low-cost trading services and easy access to multi-asset online platforms allowed small investors to pursue profit opportunities.The proliferation of “zero-commission” trading models has attracted an increasing number of clients. This trend has initiated a market-wide reduction in both direct costs, such as trading fees, and indirect costs associated with trading. Additionally, the increased participation of investors has enhanced market liquidity by tightening bid-ask spreads, improving order execution, and minimising price impact.This growing order flow has also raised concerns about the Payment for Order Flow (PFOF) model in Europe. This practice risks directing orders toward market makers offering higher rebates rather than ensuring best execution. In 2021, the US platform Robinhood experienced a significant surge in retail investment flows. This culminated in notable trading events, such as those surrounding GameStop and AMC, where volumes skyrocketed, driven by social media and online forums.The activities of retail investors on platforms like Robinhood drew the atten
Mar. Feb 11th, 2025
