Podcast February 22, 2022

Why 2022 Is the Year of Retail Investing

Since the pandemic began, retail investing has exploded in popularity.

Technology has made it easier than ever to get involved, while the bullish markets make it particularly enticing.

But is this trend a fad or the new normal?

To help answer that, we sat down with Dan Raju, Co-Founder, and CEO of Tradier, who is confident that 2022 will be the year of retail investing.

Join us as we discuss:

  • Why the retail investing space is booming after the pandemic
  • The Graduation Effect and why it’s easier than ever to get involved in advanced trading

Let’s dig into the future of retail investing.

“Now you have this highly vibrant, post-pandemic retail investor landscape, which has come to a point where retail volumes are hitting almost 25-30% of the total volume on some days.” — Dan Raju

Original Infrastructure, Original Ideas

Dan and his co-founder started Tradier in 2013. They were the first to pioneer the idea that brokerage services could be distributed in a unique way — by thinking of it as a service rather than as a direct-to-consumer operation.

As Dan says, “We were the first folks to build a truly extensive brokerage infrastructure and deliver that to the API.”

It was an original idea to take a burdensome fabric like a brokerage, abstract all the complexities, and make the platform available on the cloud. Through that experience, Dan discovered his passion for financial services, unbundling the heavy burdens of compliance-driven fabrics.

“We’re so excited to be a part of the Fintech unbundling of the traditional bank and the brokerage firm that is occurring,” Dan told us.

A very vertical journey

If you’re an entrepreneur, you learn, evolve, and productize what you watch, right?

That’s what Tradier did. Today, it powers more than 300 companies across 75 countries, supporting some of the most active traders in the market.

When Dan’s — and Tradier’s — journey started, banks and brokers were all verticalized in the sense that if you wanted to invest, the journey was a very vertical journey. You would go to the top five brokers, put your money there, and then live with that broker throughout your life.

That’s not a system built for the modern world.

“We had seen a fundamental shift,” Dan said. “We had seen the need that is coming up in the market for investors trying to take over their own finances.”

At the same time, Dan and his co-founder saw a fundamental boom in more active trading. There’s no way the existing stack was going to satisfy the needs of active traders.

The Year of Retail Investing

The main trends Dan sees right now are the following:

  1. A lot of traders will come in early or graduate into doing more advanced trading. He calls that “the graduation effect.”
  2. They’re looking for more choice and price than they ever did before.
  3. A tremendous amount of international-based accounts are coming into the US, opening brokerage accounts in the US market, and trading in the US markets.
  4. Most importantly, there is the unbundling of the traditional bank and brokerage firm being accelerated.

If anybody’s in the retail investing space, Dan thinks 2022 is going to be a crucial year.

“I think right now people want to invest, and they don’t really draw the distinction between investing in cryptocurrency and securities.” — Dan Raju

The Rise of Retail Trading

What has also happened during the pandemic — and it’s very interesting to study what had happened just before and during the pandemic — is a rapid education in the graduation effect.

When so many people are clicking online into small micro and macro communities, they tend to convert, learn, and experiment. Basically, they want to go ahead and try out things they never did before, compressing what used to take years into weeks or months.

People are getting into advanced trading really, really early now. Combine that with the fact that the markets have just been having a bull run during the pandemic, and you have all four factors: A bull run, a bull market, a captive audience that’s hyper enabled, and a larger number of people all at the same time.

These factors working together have created the retail volumes we’re seeing today.

The retail trader landscape

Dan says that after 2020, roughly 15 million people actually started trading options. More than that, they began getting into advanced trading strategies and back-testing social mobile web automation.

Now there’s a highly vibrant, post-pandemic retail investor landscape that has caused retail volumes to hit 25-30% of the total volume in the market some days, particularly on the option space.

The internationalization of the US brokerage market

International traders are jumping into the U.S. market. Here’s why and what it means for the future:

  • People all over the world connect with American brands. They want to be part of the story.
  • Most other currencies have lost value vis-a-vis the US dollar.
  • American dollars are convenient.
  • Internationally, people work for US-based companies.
  • It’s legal for people in other countries to invest in the US.
  • We may see new regulations — especially around crypto — start to creep up in the US.

Whatever their reasons, active traders are looking for the best price in the marketplace. And Dan is helping them find it.

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