• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Stocks

Does the Surge in Retail Traders Signal an Inevitable Market Collapse?

With the elimination of commissions, you can 'play' for free as long as you have capital.
By JAMES "REV SHARK" DEPORRE
Aug 06, 2020 | 12:00 PM EDT
Stocks quotes in this article: SCHW

Whenever there is a surge in speculative trading by individual traders the traditional Wall Street pundits say "this will end badly." The logic is this is "dumb money" that is overly emotional and doesn't know how the market really operates. When these folks are rushing to buy it's a contrary indicator and the market is heading for a fall.

That certainly was the case in 1999-2000 when the internet bubble took place and it seemed that everyone was a stock market genius. When the collapse occurred a vast majority of the folks suffered major losses and abandoned the market for good.

Is the current action a reply of 1999-2000? Are all these newly minted Robinhood traders going to be wiped out when the market goes through the next corrective cycle? Will they give up on trading and find some other form of entertainment?

It is likely that there are going to be plenty of individual traders who suffer losses and give up but there are structural changes and societal shifts that favor a continuation of increased individual trading.

One of the major changes in the market in the past year or so is the elimination of commissions. There are very few transaction costs and that makes trading a little different than any other form of entertainment. You can "play" for free as long as you have capital.

Not only have apps such as Robinhood made trading easy but they also allow for the buying of fractional shares. Traditional brokers like Charles Schwab (SCHW) also allow for this. Limited capital is not an obstacle and it is easier for the small trader to diversify their risk a little.

Traders that have had a taste of this action are likely to find it as appealing as sports gambling and with apps like Robinhood, they can participate in it on a random basis. Back in 2000, traders closed those brokerage accounts as they had to deal with more administrative hassle.

Traders such as Barstool's Dave Portnoy are ripe for disdain from traditional Wall Street because they are openly mocking "the suits." It is schtick and it covers up the seriousness of the pursuit for many, if not most, of these new traders.

Is this going to end badly? All bull markets end badly. That is the nature of the cycle but I suspect that many of these individual traders will stick around and that they will have an ongoing impact on the way the market trades.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Rev Shark had no positions in any securities mentioned.

TAGS: Investing | Markets | Small Cap | Stocks | Trading | U.S. Equity

More from Stocks

Lessons Learned in 1999 Could Come in Handy Right Now

Timothy Collins
Jan 25, 2021 9:30 AM EST

Today's hot market conjures up thoughts of two decades ago, and approaches to trading then could prove invaluable in the current environment.

2 More Covered Call Opportunities That Are Calling Investors

Bret Jensen
Jan 25, 2021 8:30 AM EST

Here are options plays involving promising small-caps Clearside Biomedical and Mustang Bio.

Momentum Is Proving More Powerful Than Overbought Readings

James "Rev Shark" DePorre
Jan 25, 2021 7:44 AM EST

Comments about how unsustainable the current market action is are hitting all-time highs, but strong, speculative trading is winning out for now.

Volatile Road Ahead, 4 Market Impact Thoughts, Monster Earnings Week

Stephen Guilfoyle
Jan 25, 2021 7:32 AM EST

What can be done? Well for one, we are going to have to be creative. Jay, and Janet, I need you both paying attention here.

ATO, the Perfect Stock for Nervous Traders?

Paul Price
Jan 25, 2021 7:00 AM EST

Here's how to play Atmos Energy, which is among the very best of all natural gas utilities.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:52 AM EST GARY BERMAN

    INDU/DIA 20 DMA

    Fibocall: The DIA has the 20 DMA @ 307.81 and w...
  • 08:04 AM EST GARY BERMAN

    Monday Morning Fibocall for 1/25/2021

    SPX (Long-Term View) The 1/21/21 NEW high @ 3861...
  • 11:01 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    I discuss price targets in my Saturday column.
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login