The U.S. Active Trader Market: Report Preview

The following is a short excerpt from an Active Trader report to be published on the week of February 27.  

One of the most revealing findings in the Aite Group investor survey was the high percentage of Americans holding financial assets who trade securities online. At the highest level, Aite Group partitions U.S. households as: 

• Traders: 54% are individuals who “trade or have traded online”
• Future traders: 24% are investors who “don’t trade now but would like to learn to do so”
• Passive investors: 22% are investors who “don’t trade now and don’t intend do so in the future”

Additionally, the trader group is split into four segments: active investors, active traders, more frequent traders (MFTs), and inactive traders:

• Active investors: Place one to 35 trades per year
• Active traders: Place from 36 to 120 trades per year
• More frequent traders (MFTs): Place more than 120 trades per year; this segment alone is responsible for more than 90% of retail trades placed
• Inactive traders: Reported being traders, but did not place trades in 2011 

Figure 1: The U.S. Investor and Trader Market by Activity Level, 2011 

Japanese Retail FX Update: Life After Leverage Reduction

Trading activity in the Japanese retail FX market remains remarkably resilient despite two rounds of leverage reduction. The estimated US$ 71 billion in daily trading volume of December 2011 is just shy of the US$75 billion daily volume seen three years earlier. The August 2010 FX margin policy change raised the maximum leverage to 50:1 from levels as high as 700:1; while the August 2011 cut took the maximum leverage to a mere 25:1—this present rate is well below the 50:1 maximum leverage in the United States and 200:1 common leverage offered in the U.K.

Figure 1: Japan: Retail FX Daily Volume

Copy Trading and the Three Pillars of the Wealth Management Business

Stagnation in the revenue creation capabilities of wealth management firms has developed a fertile soil for new ideas to come forth. Yet, signs of demand-saturation in new products (like those seen in new ETF issuance) suggest that wealth management trends have to be discovered and acted upon earlier and earlier in their life cycles.

Copy trading  is one emerging financial service holding promise because it improves the outlook of all three pillars of wealth management (asset gathering, trading volume, and fees), particularly during this period of low yields and uncertain economic conditions. There is no clear leader in the copy-trading space, but there are a handful of technology specialists in a race for scale, looking for institutional partners to grow their unique brand of copy trading. Aite Group anticipates that this will be the year when copy trading will make serious inroads into retail investing. 

TRADING VOLUME MULTIPLIER

The challenge of meeting a huge demand for safe investment vehicles

Anyone who has noticed how bond demand since 1Q 2007 has kept the U.S. retirement fund industry its asset acquisition in the black will understand that retail investors have not stopped clamoring for safe trading/investment instruments. A similar move is afoot in the ETF world, where bond ETFs now comprise 14% of all ETF assets – up from 5% at the end of 2006. 

Wait a minute, are we not entering a growth stage that should favor stock demand? I have discussed in other blog entries how macro events are setting the stage for continued investor concern, but there is one new element that threatens for this negative spiral of investor confidence to continue. Banks, the traditional creators of financial instruments, are understandably in bunker mentality.

Yes, the Volker rule, stagnation in OTC derivatives regulations, ring-fencing plans in the UK, (out-of-touch) high-frequency trading/short-sell-bans rules from ESMA, and new rounds of bank recapitalization requirements seem to be having a bit of an impact on bank trading ops (JP Morgan, Goldman Sachs, etc).