Sophisticated retail investors: the new normal

Historically, Wall Street insiders have viewed retail investors as inexperienced rookies ready to be taken out. This duality has altered as education, and the democratisation of sophisticated risk management tools raise the level of sophistication of mom-and-pop “Main Street” traders. This is particularly true when employing options, which provide greater leverage than the stock market, are simple to access through online brokerage accounts, and are simple enough for non-experts to understand.

Last month’s Options Industry Conference in Nashville featured a panel discussion on “Today’s Trends in Retail,” which focused on the growth of retail traders rather than merely their numbers.   

Retail investors are now more knowledgeable than ever before, and they have access to a virtually frictionless trading environment, according to Sean Feeney, Head of U.S. Options at Nasdaq and a former institutional options investor. 

“The tools accessible to retail traders today are far superior to the tools I had on the trading floor in 1999,” Feeney said on the panel on April 27. They are able to perform portfolio analyses that I could only dream about.

Macroeconomic subjects like inflation and the Federal Reserve are gaining increasing traction on TikTok and other social media platforms that are popular with millennials, according to Ming Zhao, CEO and Founder of Atomic Vaults, a fintech business that aims to make fractional options trading accessible to the general public. In comparison to ten years earlier, Zhao observed that “people are surprisingly well-educated.” The average age at which people begin trading is substantially lower.

In the midst of the pandemic in 2020–2021, several teenage options traders began buying and selling puts and calls while confined to their homes. According to Ravi Jain, Chief Product Officer of Sterling Trading Tech, a sort of “graduating class” of traders can be regarded as those that entered the markets at that time and are still active.


“[Retail  investors] are getting more knowledgeable, demanding more ability to trade spreads and short options, and better analytics,” Jain stated. They will transition to more advanced tactics.

To that end, Nasdaq’s Feeney stated, “We as an industry need to step on the gas as far as our educational efforts as more complex strategies being deployed by retail continue to expand.”

Retail investors have actually become smarter, according to a recent poll by Finimize, a tools and resources app for them. When necessary, they take a defensive stance rather than just buying lots of single-stock options and trending stocks, contrary to popular belief.

The Finimize Modern Investor Pulse for Q2 2023 declared that “sophisticated retail investors are the new norm.” “Retail investors are changing and growing savvier and more independent. Since the epidemic, they have actively chosen individual equities for their portfolios, and they now use exchange-traded funds (ETFs) to diversify and stabilise their holdings. In this “new normal,” ordinary investors are choosing broad market tracker funds rather than caving to market pressures in search of safety.

In a Finimize study of more than 1,700 retail investors, 58% of respondents said they would be less risky in the upcoming three months. The Nasdaq-100 Index (NDX), which is extremely liquid, contains the majority of the firms that retail investors like, including Apple, Microsoft, Nvidia, Amazon, and Tesla, making it the obvious choice for a broad market tracker fund.

Nasdaq-100 Index Options (NDX) enable both retail and institutional investors to maintain equity exposure while minimising downside risk, whether to safeguard a portfolio against a market correction, manage risks, or create yield.

We are in a new paradigm as the options business marks its 50th anniversary. Average daily volumes evidence a significantly wider awareness. The concept of an “alternative” has changed. According to Nasdaq’s Kevin Davitt, who is in charge of the index options content, they are now commonly used by investors of all stripes.