The Rise of Retail Investors and How It's Changing Markets

Explores individuals, social media, and market psychology

By Rajesh Sharma

Five years ago, individual investors were an afterthought in market analysis. They represented background noise, a small fraction of trading volume that institutional investors could safely ignore. That world is gone. Retail investors now account for roughly 20.5% of daily U.S. equity trading volume, and they're fundamentally reshaping how markets work.

The Numbers Behind the Revolution

Retail traders added approximately $302 billion to U.S. stocks in 2025, up 53% from the previous year and surpassing even the 2021 meme stock peak. This isn't a temporary phenomenon driven by pandemic stimulus checks. Sixty-two percent of U.S. adults now own stocks, up from 58% in 2022, reflecting a structural shift in how Americans engage with financial markets.

The tools powering this transformation are smartphones. Seventy-five percent of retail trades globally are now executed via mobile apps. Research from Germany shows that switching from desktop to mobile increased the odds of purchasing risky assets by 67% and return-chasing behavior by 71%. When a Chinese advisory firm introduced mobile trading, volume surged 80% and investor attention jumped 143%.

Commission-free trading platforms removed barriers that once limited participation. But it's the social aspect, the ability to discuss, share, and coordinate that truly distinguishes this generation of retail investors from their predecessors.

The Social Media Effect

The subreddit r/WallStreetBets has become the most visible symbol of social investing. With over 15 million members, the community describes itself as "like 4chan found a Bloomberg Terminal." It gained prominence coordinating the GameStop short squeeze in 2021, when retail traders pushed the stock from around $17 to over $480 in weeks, costing hedge funds billions.

That wasn't an isolated event. In 2025, retail investors drove a 2,589% surge in weekly trading volume for meme stocks like Kohl's, which saw single-day price jumps of roughly 37% and monthly gains exceeding 50% based purely on social media momentum.

Research shows this social media influence comes with costs. Fifty-one percent of retail investors admit to being influenced by FOMO when placing trades. Academic studies analyzing r/WallStreetBets data found that positions created when social media attention peaked realized negative 8.5% holding period returns, while the average return across all investments was positive. Investment decisions based on angry or emotional Reddit posts significantly underperformed those based on traditional analyst advice.

Yet dismissing social investors as purely irrational misses important nuance. Analysis of WallStreetBets shows the community satisfies several criteria for collective intelligence and can generate buy signals that significantly outperform the S&P 500 index when properly filtered.

How Markets Are Adapting

Extended-hours trading now represents 11% of daily volume more than double the 2019 level with retail investors driving most of this growth. Pre-market trading alone has grown fifteen-fold since 2019. Individual investors, often more flexible in trading times, are creating liquidity well beyond standard market hours.

The generational divide is striking. Nearly half of Gen Z investors trade weekly, with 25% trading daily behavior that increasingly resembles institutional investors. Forty-one percent of Gen Z and Millennials say they would allow an AI assistant to manage their investments, compared to just 14% of Boomers.

Platforms are responding. Robinhood recently launched social features directly within its app, allowing traders to share positions and commentary without leaving the platform. Prediction markets surpassed $45 billion in trading volume in 2025, integrating event contracts into retail platforms and giving individual investors access to tools previously reserved for institutions.

The Institutional Reckoning

Retail and institutional investors increasingly serve as marginal price-setters in equity movements. J.P. Morgan reports that retail activity reached 36% of total order flow on April 29, 2025 an all-time high. While institutional investors still dominate ownership of large blocks and private markets, their daily trading share faces pressure.

This creates both opportunities and vulnerabilities. Broader household participation diversifies shareholder bases and provides additional demand during volatile periods. The 2025 bull market was sustained partly by persistent retail inflows when institutional positioning remained cautious.

But concentration risk remains real. Retail investors favor technology stocks heavily, creating potential instability if sentiment shifts. The tendency toward momentum trading and high portfolio turnover amplifies volatility.

What It Means

Retail investors aren't going away. Their influence will likely grow as younger, digitally native generations accumulate wealth. Markets are adapting to accommodate millions of individuals who view investing as both wealth-building and social participation.

The question isn't whether retail matters, it clearly does. The question is whether markets can maintain stability when a significant portion of participants trade based on social contagion rather than fundamental analysis.