ETFs

Seven Things To Know About Retail Investor ETF Activity

By Samara Cohen

RETAIL INVESTORS AND ETFs

The number of retail investors—individuals who invest their own money to save for retirement or meet other financial goals—participating in financial markets has grown significantly in recent years.As a result, retail trading in U.S.-listed ETFs has also increased, with trading volumes, measured by the number of ETF shares traded multiplied by the price of the ETF shares, growing at a three-year compound annual growth rate of 52% (Figure 1).

We believe the growth in retail investors’ use of ETFs has been driven by a few key factors, including an industry shift to commission-free trading, improved digital experiences on direct platforms, and investor empowerment stemming from greater access to financial education through social media and other forums. Below are some key statistics that illustrate how retail investors are engaging with the U.S. ETF market (Figure 2).

FIGURE 1: GROWTH OF RETAIL TRADING VOLUMES IN ETFs2

Figure 1

Chart Description: Bar chart showing the growth in yearly volumes of retail investor ETF trading, measured in $ trillions. ETF volume is calculated by taking the amount of ETF shares traded multiplied by the price each share was traded at.

Key stats

FROM 2022 TO Q1 2023: WHAT'S CHANGED?

Q1 2023 provided a more challenging environment for investors due to inflation, interest rate policy and stress in the banking sector. Still, retail investor activity remained in line with 2022 levels and even grew in some areas.

  • Retail investors increased their use of actively managed ETFs. Despite representing only 6% of total U.S.-listed ETF assets, actively managed ETFs made up over 30% of ETF flows in Q1 2023.4 Retail investors accounted for nearly 28% of all active ETF volumes in the quarter, up from 24% in 2022.5
  • Retail investors continued to trade ETF options. Retail investors drove 23% of all ETF option activity, a slight dip from 24% in 2022.6 However, there was increased usage of zero days to expiration (0DTE) options, which have become increasingly popular investment tools among retail investors.7
  • Retail investors remained active in ETFs. Retail investor ETF activity increased slightly, from 15.1% of total ETF volume in 2022 to over 15.3% in Q1 2023.8

1 For more information, see the 2022 Investment Company Fact Book, available here.

2 As of December 31, 2022. Source: BlackRock analysis of SEC Rule 605 data.

3 As of March 31, 2023. Source: Options Clearing Corporation (OCC), UBS, BlackRock analysis of SEC Rule 605 data. ETF option volume attributable to retail investors is based on orders of less than 11 contracts and excludes market maker volumes.

4 As of March 31, 2023. Source: BlackRock, Bloomberg.

5 As of March 31, 2023. Source: BlackRock analysis of SEC Rule 605 data.

6 As of March 31, 2023. Source: Options Clearing Corporation (OCC), BlackRock analysis of SEC Rule 605 data. ETF option volume attributable to retail investors is based on orders of less than 11 contracts and excludes market maker volumes.

7 A zero days to expiration (0DTE) option is an options contract set to expire at the end of the current trading day. This means that the value of a 0DTE option is entirely determined by the underlying asset's price movements on that day. Retail investors have shown preference for shorter expiries. 65% of all options traded by retail investors expire within 5 days, higher than the industry average of 43%. As of March 31, 2023. Source: Cboe.

8 As of March 31, 2023. Source: BlackRock analysis of SEC Rule 605 data.

Originally published on iShares.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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