European retail investor participation has always been low relative to other advanced economies. Could that change?
Institutional investors can be likened to wholesalers they spend money on behalf of their clients their purchases are smaller and typically require a middleman, like a florist. and just like online flower delivery companies platforms like robinhood have made markets more accessible than ever. then i can trade more frequently and not feel bad about it. but in europe, the
Number of people buying and selling shares remains very low. which is, frankly speaking, 100 years old. private retail ownership of stock markets in society, right. to understand why retail investing isn’t very big in europe, american households own $38 trillion worth of equities, that’s nearly 60% of the entire u.s. equity market. christian hecker is the co-founder
Of trade republic, why do you think u.s. players have struggled to well, i think the u.s. market and the european market especially due to the lack of the 401(k) structure in europe. a 401(k) depends on the contributions you make throughout your career. with a 401(k), you choose your own investments, and your account balance fluctuates based on market gains or losses.
In the u.s., there aren’t many sort of so it’s sort of like the onus is on you to invest for your retirement. savers have little direct interaction with stock markets. instead, statutory or state pensions are more common, to governments or large financial institutions. there is a perception perhaps from the retail investors and probably reserved only to wealthy people.
So, there is a change of perception which is needed. the main issue is about trust, and the best way to build trust but also which protect the investors and makes the investors feel protected. one piece of research estimates that retail activity makes up only 5-7% of total trading volume in europe, despite that, there is a slew of start-ups in europe they include revolut,
Trading 212, freetrade and trade republic. and include ‘gamified’ features to encourage participation as well. we’re kind of at a crossroads in europe. and so, you’ve seen a number of in europe many people have realised that is not working any more, right. and so, they face a massive pension gap and they figure that participating in capital markets and so we’ve seen
Millions of people entering so, could this be the catalyst europe has been waiting for? very positive element of the effort that we are doing to try on the other hand, of course, it’s a phenomenon in general are those associated with ‘payment for order flow,’ something the european commission is planning to ban. back in the day, i couldn’t buy stocks off an app.
Who would then call the stock exchange to make the trade for me. they send your purchase on to another company this middleman company, called a ‘market maker,’ needs both buyers and sellers in order to make their business model work. that’s why they pay companies like robinhood for your trades. payment for order flow has been in the market for a very long time.
Driving force behind lowering commission fees which is especially but regulators argue it’s also risky and doesn’t these risks include potential conflicts of interest when a trading platform routes an order to a middleman the policymakers have to try and find the flexibility and encouragement and promoting which of course help to reduce costs, help to make people more
Attracted underestimate the risks that this entails and investors should be fully informed about those risks. in fact, “what is the stock market” is the most so, if europe bans the payment for order flow model, and if not, is retail investing on the continent here to stay? the pandora box is opened, then you won’t get back. investing all my discretionary income in
The market in some capacity. over the past year and a half, that’s not gonna change. i think everyone is going to need to follow retail investors going forward.
Transcribed from video
Why retail investing has taken off in the U.S. – but not Europe By CNBC International