Retail investors are currently less active in stock markets compared to previous years, reversing a trend that gained momentum during the pandemic. Once a driving force behind market fluctuations, these investors have ceded some of their influence back to institutional traders.
Read More
Historically, retail investors were seen as “dumb money,” contributing a smaller portion to overall trading volume. However, the onset of zero-commission trading and the rise of social media coordinated trading during the pandemic led to a significant increase in retail participation, particularly with meme stocks gaining traction.
Despite expectations that this trend would decline, retail investment continued to thrive up until 2025. During that period, many individuals leveraged market dips, particularly in relation to policy expectations from former President Trump, creating a notable impact on market dynamics.
As of now, though, retail traders have diminished their activity significantly. According to a CNBC report, retail investors’ share of S&P 500 trading volume is currently more than three percentage points below the five-year average, as reported by Goldman Sachs. Additionally, institutional investors are significantly more active, with options flow noted to be three times the usual levels for September, based on data from Vanda Research.
The shift in retail investor behavior can be attributed to several factors. Some are opting to delegate trading decisions to AI agents, which operate more conservatively, while others are shifting their focus to bonds, attracted by the highest yields seen in over a decade. As of August, net inflows into U.S. bond funds have reached $625 billion this year, the highest since 2010, according to Morningstar.
In contrast, institutional investors are becoming more selective in their stock choices, concentrating on specific sectors such as AI technology stocks, as noted by Viraj Patel, global market strategist at Vanda.