Young, brand-new traders are on a buying frezny.
And it scares even those who benefit.
After a recently released E*TRADE study, showing that Gen Z and Millennial investors are trading stocks 21% and derivatives 24% more frequently than older traders, the company’s own Director of Trading had this to say:
“Access to the market has never been easier, so investors just embarking on trading should walk before they run. A thoughtful and disciplined approach is key — do your research, set up watch lists, and align your trading strategy with your goals and risk tolerance.”
A guy whose job it is to attract more traders telling those who are coming that they are going too fast is wild. But it has been a wild year, after all.
From the same survey, 51% of those under 34 have said that their risk tolerance has increased since the start of the pandemic.
And you can see what that’s done for the market in general:
Yet, these young investors aren’t primarily just buying index ETFs and safe mutual funds. They are taking heed of an old Warren Buffett and Benjamin Graham axiom, buying what they know.
Where This Flood of New Traders Are Heading
It’s no secret that younger investors are attracted to the tech industry. A quick look at the largest companies in the world right now shows you that technology is where it’s at.
Apple Inc. (NASDAQ: AAPL) has a $2 trillion price tag. Amazon.com Inc. (NASDAQ: AMZN) and Microsoft Corp. (NASDAQ: MSFT) are not far behind. Even Tesla Inc. (NASDAQ: TSLA) has cracked the top 15 largest companies in the world.
And this trend amongst younger traders is no small part of that.
But the reason even E&TRADE’s Director of Trading is scared is because of how they are buying all this stock and where they’ll go from here.
Thanks to Robintrack, a website that shows how many Robinhood users hold any one stock at any given time, we can see exactly how markets are moving in real-time.
Just look at Robintrack’s Apple chart:
In green, you can see how Robinhood users have been instrumental in Apple’s historic climb this year.
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According to the disruptive trading app, its average user is just 31 years old.
No wonder E&TRADE’s chief trader is scared!
That answers the “how” of what these young traders are doing, but not the “where to from here” of it.
The Other Youth Trader Facilitator
Those earlier stats give you a hint.
Younger traders were even more interested in derivative trades (i.e. options) than stocks compared to older age brackets. Meaning, just owning Apple shares isn’t cutting it anymore.
The options market has been integral to investors for decades. It can offer ways to hedge other investments or time the news cycle.
But now, in the hands of the largest generation since the Baby Boomers, it is going to find its way into even more mainstream discussions.
And there’s a breakout play behind it.
You see, most stock options are traded on the Chicago Board Options Exchange, or CBOE. So, all these young traders diving into the market for the first time are giving business to the CBOE’s parent, Cboe Global Markets Inc. (BATS: CBOE).
As you can see, its stock hasn’t yet reacted to this enormous emerging trend. In fact, it still hasn’t recovered from the very early days of the pandemic when it had to shut down its exchange’s trading floor for a few days.
While its stock isn’t reflecting all this traffic, the company’s own numbers are. In June, the company announced that its options trading exchanges set a new single-day record for option contract volume.
While this spurt of new, young traders is not news anymore, the way to play it is here. You don’t have to wait for Robinhood to finally IPO, which might not even happen this year at all.
Instead, you can buy the other facilitator of these Gen Z and Millennial traders. They may be using Robinhood to trade. But the investments they are trading is done on CBOE’s exchange.
To your prosperity and health,
Joshua M. Belanger
Executive Publisher & Founder