The Pandemic’s Day Trading Frenzy
The pandemic has left millions of Americans unemployed and lockdowns have left people at home with little to do. Meanwhile, since a crash in March that rivaled that of 1987, the stock market has rebounded. Last Tuesday, the S&P 500 and Nasdaq closed at record highs. Add all that together, and it’s unsurprising that amateur traders—also known as retail investors—have flooded the market in historic proportions. They have flocked to zero-fee broker firms en masse during the pandemic in search of big returns while the getting is good.
This influx of amateur day traders into the market has worried many Wall Street analysts who have witnessed a spike in unusual behavior ever since. For example, it is widely believed that retail investors are behind the Hertz bubble in June. Hertz’s price shares grew tenfold—thanks in part to those who have accounts with Robinhood, an online brokerage firm—just days after the car-rental company filed for Chapter 11 bankruptcy in late May, puzzling market analysts who are used to seeing investors run for the hills in the face of such worthless stocks.
These new day traders have turned to a number of brokerage firms, but Robinhood has been the most popular by a long shot. The number of Robinhood accounts surged from 10 million to 13 million during the first four months of this year, as Americans looked for new revenue streams during a time of economic hardship, or ways to pass the time when other pastimes aren’t an option.
The coronavirus pandemic also led to a temporary moratorium of professional sports, meaning those who previously spent their days sports betting or playing Texas Hold ‘em in their local casinos have flocked to day trading as an alternative form of gambling.