Small traders boost brokerages

It's a retail traders’ world now, and we’re just all living in it.

At least that was the takeaway from Charles Schwab's latest earnings report. The brokerage revealed a blockbuster quarter: Third-quarter revenue jumped 27% to $6.14 billion, at the same time that net interest revenue increased 37%. But perhaps the biggest flex of all was that the firm’s net new assets popped 48% from the year prior to reach $134.4 billion, while daily average trading volume increased 30% to 7.4 million.

And who does the storied Wall Street firm have to thank for last quarter’s booming business? Not legacy money managers or deep-pocked institutional clients, no—it was humble retail traders who padded the company’s bottom line.

“Our unwavering focus on delivering for clients helped us attract $137.5 billion in 3Q core net new assets plus over 1 million new brokerage accounts for the fourth straight quarter,” said President and CEO Rick Wurster.

Wurster noted that one third of new retail accounts were opened by Gen Z investors, so it makes sense that the company is trying to entice younger, internet-savvy traders. For example, Schwab is working to expand its crypto offerings, as well as give traders a way to put money in private markets—both growing trends across the rest of the Street, too.

Small investors keep betting on the market

Retail investors may not necessarily be deep-pocketed, but they can still move markets—as hedge funds learned the hard way back during the 2021 GameStop debacle. And as they proved once again last week, it pays to follow the crowd

The S&P 500 fell 2.7% last Friday after President Trump threatened new tariffs on China. But instead of backing off, retail traders doubled down, taking a far more aggressive “buy the dip strategy” than the professionals.

According to data reported by MarketWatch, investors placed a record 110 million options contracts on Friday, higher than the previous record of 102.6 million contracts in early April, and only the second time in history when options contracts topped 100 million. Individual investors bought 11% more bullish call options and 23% less bearish put options than institutional investors.

While brokerages are profiting, short sellers are struggling in this brave new world: Individual investors’ drive to buy the dip has contributed to the worst returns for short sellers since 2020, according to the FT.

With all this retail trading, it’s no wonder that brokerages are shifting their strategy: They’ve gone from shunning the debauchery to embracing it with open arms and dollar signs in their eyes.—LB