The retail euphoria phase of the stock market bubble was supercharged during the virus lockdown where millennials, with no sports to watch, stuck in their parents' basements, unemployed, and receiving stimulus checks, decided to become day traders.
Many of these youngsters, with insurmountable debts and no savings, couldn't afford to build an elaborate trading desk to run a financial terminal, used their smartphones to trade via a popular trading app called Robinhood.
The sheer amount of millennials day trading on Robinhood during the pandemic was more than enough to boost daily average revenue trades, DARTs, to 4.31 million in June, reported Bloomberg.
DARTs is a metric used in the brokerage industry to track individual brokerage houses to determine how well they're doing in generating revenue from commissions. Judging by Robinhood's explosive trading activity, E*Trade appears to be a dying fad.
Robinhood has become popular among millennials because it offers a zero-commission fee structure. However, there's a hidden cost, and what Robinhood doesn't tell its users is that it sells order flow to hedge funds to generate revenue.
Here's Robinhood's payment-for-order-flow agreement with Citadel Securities.
Payments from order flow were about $180 million in 2Q20, which was double from the quarter prior, a regulatory filing showed. The money Robinhood collects is from Citadel and Virtu Financial Inc.
Readers may recall Citadel was recently fined by FINRA for front-running its clients' orders.
A few months ago, we noted how "retail traders have taken over the market," as institutions remain paralyzed unable or unwilling to buy stocks in the parabolic melt-up where a record number of Wall Street professionals say the S&P is overvalued...
With professionals sitting back, millennials are panic buying technology stocks at record valuations.
UBS Global Wealth Management's Charles Day told his wealthy clients to "avoid" chasing parts of the equity market pushed up into a speculative frenzy by day traders.
"The stocks that I hadn't heard of three months ago all of a sudden are the most active -- that's not where investors go, that's where traders might go, or hobbyists might go," said Day. "If you're a wealthy investor, you have to avoid thinking that you're missing out on huge returns in these stocks."
And remember: Robinhood - and retail day trading in general - is all about momentum...
As soon as President Trump helicopter drops the next round of free money to working-poor Americans, you can bet Robinhooders are going to leverage their accounts as wealthy investors continue to dump stocks.