Local stock traders topped 1.2m last year, but they may not stick around

The number of retail shareholders in Australia is more than four-times higher now than the same time last year, a survey conducted by market research firm Investment Trends indicates.

By the end of last year, a record 1.25 million Australians were active retail online investors. Some 435,000 Australians made their first online share trade in 2020. And of these new traders, around one-in-six are under the age of 25, and 70% are aged 40-years and below.

Is this just a spike?

The sustainability of this uptick in retail trading – spurred by several factors discussed further below – is the million-dollar question. It’s something Investment Trends’ head of research Irene Guiamatsia doesn’t know the answer to – as a researcher she’s strictly focused on quantifying the past rather than speculating on the future.

“But there is a lot of detail we can get from looking at our study,” Guiamatsia says, having received responses from 18,731 investors and traders. The study has been conducted twice-annually for around 15 years.

The reasons why people invest is a key consideration in trying to understand why the number of people trading has risen so dramatically. There was an element of “FOMO” (fear of missing out) as news of share market volatility saw US stocks sell-off 30% in a month before rebounding in the second half of 2020. This is highlighted in the large number of Australians who bought international stocks for the first time last year, doubling to 109,000 from 54,000 in the 12 months to December 2020.

A greater choice of investment platforms has been a key driver of the uptake, with investors now presented with more choices than ever. Two of the most prominent are Robinhood in the US and Australian low-cost share-trading platform Superhero.

But a few related factors outstrip even this FOMO factor, explains Guiamatsia. Alongside the low interest rate environment and the unprecedented levels of government stimulus, “people had a lot of time on their hands, which translated into a desire to learn something new.”

Weighing up the sustainability of this rise in share trading, particularly among the younger demographic, she suggests this factor is also one that’s likely to drop off considerably as people get back to more normal social settings.

But that doesn’t mean the number of people trading shares will snap back entirely, either. Comparisons can be drawn between the uplift in trading levels and online shopping during the pandemic. And while management from the likes of Bunnings and Amazon have mostly conceded sales will slow, the broad view is that online shopping levels will remain higher from here on. “This trend in retail investing isn’t unusual in comparison to what we’ve seen with online shopping,” says Guiamatsia.

The performance of these new traders is another consideration in how long they stick around. “It seems abundantly clear that the decision-making for many of these traders is often not the most informed,” says Guiamatsia.

The mania around video game company GameStop in the US, whose shares surged more than 1,600% in January before crashing down just as quickly, is one global example. Closer to home, buy-now-pay-later challenger IOUpay last month saw its shares rising almost 300% an hour, prompting “speeding tickets” from the Australian Securities Exchange.

But Guiamatsia emphasises that Australia’s stock brokers will be working double-time to try to hold onto as many of this cohort of new investors as possible. “They know this is a once-in-a-lifetime opportunity for them to keep those people on the platform. They have every interest in actually educating these people.”

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