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Online trading in 2022: Momentum seen ebbing after Covid-frenzy

Here’s how our analysts at BrokerChooser, a global broker comparison website, see the current state of the online retail trading market and trends unfolding in 2022. 

  • Beginner investors flooded the markets last year and they are here to stay.
  • The brokerage industry has slowed down significantly by the end of 2021, reaching pre-Covid levels, although online brokers' revenues and profits remain high.
  • Retail investors will remain the main driver of the online market, even though new account openings are decreasing.
  • Cryptocurrency will remain one of the key stories to watch in 2022, as it is expected to stay massively popular with investors, although more regulation is likely coming.
  • In 2022, retail investors will continue to be highly active, while interest rate hikes, inflation and looming threats – such as increasing energy prices, emerging new variants of Covid and a Chinese real estate bubble – could endanger any post-lockdown recovery, while also creating opportunities for traders.

According to our analysts at BrokerChooser, these were the most important trends in 2021:

Market has slowed down, but revenue remains high

The online broker market slowed down in the second half of 2021 compared to last year. New account openings at brokers covered by BrokerChooser’s analysis were down 73% in the third quarter compared to the first quarter of 2021. 

CFD and stock brokers, which have high trader activity and are best able to monetize, still lead the way. Online brokers covered by our analysis have on average 30% higher revenue and profit between the first and third quarter of 2021, compared to the same period last year. We can see big differences between specific brokers on how they could monetize their customers, i.e. what is the revenue per customer. For example, Robinhood performs the worst in this regard. 

Revenue per customer in Q3 2021, by broker (USD)

In terms of account sizes, there was a 28% compound annual growth rate in assets under management at brokers covered by our analysis in the period between 2015 and 2021. The value jumped significantly from 2019 to 2020. 

One important driver is increased retail investor activity. US brokers have more than 20 times more assets under management than brokers elsewhere in our analysis. US brokers also have significantly more accounts compared to other brokers covered in our analysis. Robinhood customers have the smallest account sizes: roughly $4,000, while the average account size at Fidelity is about 70 times higher.

New accounts decreased, trades driven by retail investors

New account openings at brokers covered by BrokerChooser’s analysis were 73% less in Q3 2021 than in the first quarter of the year. One of the biggest drops was at Robinhood, with an 88% drop in new account openings. Earlier this year, the market was US-driven, as US brokers led the way in terms of total brokerage accounts. There are nine times as many accounts at US brokers as at other brokers covered by our analysis. 

New accounts opened in 2020-2021, by quarter (million)

The number of executed trades spiked in the first quarter of 2021: activity in this quarter was 51% higher than the average for the period between Q1 2020 and Q3 2021. There are roughly 15 times more trades at US brokers than at other brokers covered in our analysis. One of the main reasons behind this is their significantly higher customer base. There are significant differences between the trading activity of customers at various brokers: for example, traders at Interactive Brokers or XTB trade up to 5-10 times more than clients at other brokers. 

Total executed trades in 2020-2021, by quarter (million)

You can find more data about the international retail brokerage market on our new data dashboard

Beginner investors still riding high

Beginner investors are still riding the high of the Covid market surge and are in the majority, according to BrokerChooser data. There are more beginners in the US, while overall there is roughly the same number of retail traders in the US as in the EU. 

Day trading and options trading is stronger in the US than in Europe, which was the trend last year as well. This year the most popular assets were stocks and ETFs, and crypto has also become massively popular. 

There are about twice as many people who are interested in cryptocurrencies: 9% of BrokerChooser visitors say this is the top asset they are looking for in the US and the EU, while only less than 5% said the same last year.  

When the tail wags the dog: options trading is driving the stock market

As small-time investors, regulators, brokers, and the markets were watching the Gamestop fever in awe, it became more evident that a new trend is emerging with regards to the options market. With so many individual investors pouring into options trading during the Covid-19 pandemic, the options market now often drives the regular stock market. 

It is the classic case of the tail wagging the dog. Since it requires less money to buy an option, investors can control a larger volume of the stock than they could if they bought the actual shares directly, and this is what makes the options market so potent. It is also good for brokers, as zero-commission applies to the direct selling and buying of stocks, while most charge fees for options trading. BrokerChooser’s analysts have been shedding light on the phenomenon.

Online trading in 2022: Momentum seen ebbing after Covid-frenzy
The biggest stories in online trading in 2021

At BrokerChooser, we believe the following were the biggest stories of 2021 in trading:

The Gamestop stock frenzy 

A massive number of retail investors took on big money and big influence in early 2021 to make a point that startled everyone, including the stock market. The Gamestop frenzy was triggered by a Reddit thread where users teamed up to prove that despite the massive short positions on Gamestop stock, the company is worth more, and started buying call options and long positions.

More and more people joined in, causing a meteoric rise in Gamestop’s stock, which generated media interest and interest from new clients. The immense surge of new clients caused some brokers, such as Robinhood, to shut down, which led to a backlash from retail investors and scrutiny by regulators. Retail investors drove the increase in new accounts during the pandemic, but in the second half of the year account openings slowed down. 

The Gamestop short squeeze and the ​​increasing gamification of the stock market highlighted one of the most interesting phenomenons of 2021: meme stocks. These are stocks that suddenly gain popularity among retail investors through social media or online forums like Reddit. ​This traction leads to sky-high prices and unusually high trading volumes, which generally have nothing to do with the company’s performance but rather an online hype frenzy that more resembles gambling.  

Robinhood goes public 

Robinhood’s was one of the most anticipated and popular share issuances of 2021. It came on the back of the Gamestop controversy and with regulators zooming in on the popular trading app. BrokerChooser analysts dug deep into our database and found that Robinhood's customer base is three times larger than that of the other brokers included in our survey. Robinhood’s customer base is growing more than three times faster than the average growth rate at other brokers. 

On the other hand, Robinhood customers have 40-50 times smaller sums on their accounts than clients at other brokers, although client asset value is growing fast, with the growth rate the highest among all brokers. Robinhood's revenue grew at the fastest pace as well, more than three times faster than the average of all brokers. 

The controversial payment for order flow (PFOF) arrangement is at the core of their revenue, which has come under scrutiny: regulators worry that most of the trading volume is handled by a few firms that have too much influence on the market.

Biggest broker fines of the last two decades

Brokers are supposed to be transparent and fair, but what happens when they are not? In 2021, Robinhood was hit with a $70 million fine by the Financial Industrial Regulatory Authority (FINRA), the largest fine ever handed down by the agency, for inflicting "widespread and significant harm" to customers by providing them with false information about their investments.

Analyzing data from the last 20 years, BrokerChooser revealed that the second highest fine, $52 million, was paid by Ally Invest in 2016 to the US Justice Department, for its subsidiaries wrongly selling subprime residential mortgage-backed securities. The third largest fine, $48 million, had to be paid by CITIC Securities, which was among three big brokers in China that were heavily fined in 2017 for their role in the 2015 stock market crisis.

Our analysis showed that just under a third (30%) of the brokers in our database have been fined. While the fines listed here are hardly pocket change, brokers are usually much smaller companies than banks, which are generally hit harder by penalties.

It’s a man’s world - Who are the new online retail investors? 

As mobile trading apps and zero-commission brokers have become more and more popular, we wanted to know who is actually investing and from where. 

BrokerChooser’s analysis found that the online retail investor world is predominantly male. Male users outnumber female users in every single country around the world, with the global split among investors being 76% male to 24% female.

However, this gender gap isn’t quite as wide everywhere. The Philippines has the highest percentage of female investors, at 44%. In terms of age, the relative majority (39%) of investors are between 25-34, while just 5% are 65 or over. When it comes to device preference, investors are almost evenly split between using desktop computers (49.1%) and mobile phones (48.8%) to invest, with just 2.1% using tablets.

Our analysts at BrokerChooser think these are the trends to watch in online trading in 2022:

Interest rates and new Covid variants on the rise

Rising global inflation, higher energy prices, and a ballooning Chinese housing bubble are all developments to watch in 2022, according to our analysts. 

The US Federal Reserve could finish tapering before next June, and both the Fed and the European Central Bank are expected to start raising interest rates before the end of next year. Global financial markets have been watching nervously as cash-strapped Chinese property giant Evergrande, the world's most indebted real estate developer, is managing to finance its over $300 billion in liabilities. Households are also facing a sharp increase in energy prices. 

“As a result of the ongoing inflationary pressures, rising interest rates can be expected in 2022,” Krisztian Gatonyi, senior broker expert at BrokerChooser said. “The effect of the omicron Covid-19 variant could cause high volatility on the financial markets next year,” he added.

Uncertain markets provide trading opportunities

Activity on the markets has slowed down from the peaks of the Covid lockdown period. Many beginners remaining on the market are more trend-riders, who trade very actively when the hype is high, but otherwise stay on the sidelines, not looking for long-term investments. These beginner investors who only joined on the tail end of the Covid market frenzy may easily get stuck in their positions, which could hurt them in the long term.

If interest rates start to rise, it will lead to more profitable business for brokers, as they can make more money from interest on the uninvested funds lying on customers' accounts. “We expect retail trading activity to stay at an elevated level in 2022. With much uncertainty regarding inflation and future US Federal Reserve monetary policy, occasional market jitters will provide plenty of trading opportunities,” said Andras Ivan, broker analyst at BrokerChooser. 

The proliferation of the put option strategy

The popularity of put options among retail traders may rise markedly in 2022. Instead of betting on rising asset prices (through call options), retail traders may exert downward pressure on certain assets in the form of buying put options. This is especially true if there is a heavier downtrend in some areas of the market (e.g. ARKK, tech sector). The momentum trade can go either way.

Top brokers stabilize their market dominance

The top brokers are expected to retain their dominant market position in 2022. Even if there are a number of new participants on the global broker market, the best service providers have been difficult to unseat, as we have discovered on BrokerChooser’s annual top list of brokers. Interactive Brokers once again tops the list of best online brokers. Saxo Bank is still the best forex broker, and Degiro again won the best discount broker top position. The best crypto broker for 2022 remains eToro.

After the IPOs of Robinhood and Coinbase, eToro is also preparing to go public in 2022. More and more online brokers aim to become a service provider that is not only an investment platform, but a comprehensive money management platform where customers keep cash, receive interest and manage their spending.

The race to zero goes on despite regulatory pressure

An increasing number of brokerages are expected to roll out commission-free trading services, and if trading activity remains high some brokers will thrive on revenues coming from the payment for order flow model, which is the standard at most US brokers. While the US Securities and Exchange Commission (SEC) has said it will look into whether or not payment for order flow needs to be changed or banned, no regulation is expected to enter into effect yet from the beginning of 2022. There are also plans in the European Union to ban the practice, but actual regulation will take years.

“We've seen that this trend is getting more popular in the EU as well. More and more brokers started offering zero-commission stocks and ETFs, like Capital.com or Degiro. We think that in some cases, this product offering is only being used to acquire new customers and channel them to more profitable businesses, like CFD trading. In other cases, we see that there are no commissions, but other costs, like currency conversion fees, are high,” Adam Nasli, lead analyst with BrokerChooser points out. 

Crypto craze will continue

More and more online brokers are offering crypto trading as interest from investors skyrockets, which drove the two largest digital coins, Bitcoin and Ethereum to all-time highs this year. There are thousands of other cryptocurrencies (known as altcoins), some have had a great surge in popularity and price. Shiba Inu has seen a staggering 2.4 million % in price increase, Dogecoin surged by 9,567 %, and Terra altcoin’s price shot up by 6,466%. 

“We've seen that interest and trading activity in cryptos grew at a higher pace among customers compared to the growth in equities,” said Adam Nasli. Transparency has become a buzzword in the US with regards to crypto and more regulation is likely here as well.

“Crypto as an asset class is here to stay. Higher inflation, low yields, and ‘fear-of-missing-out’ will keep it at the forefront of many traders’ minds. However, stronger regulatory oversight seems to be inevitable,” Gyula Lencses, BrokerChooser’s expert, warned. China this year declared all crypto transactions illegal, and Sweden urged the EU to ban crypto mining due to its large effect on CO2 emissions. 

The rise of NFTs and the expansion of their global market is also expected to continue.

Online trading market trends in 2022

Author of this article

Eszter Zalan

Author of this article

Eszter is a Brussels-based content editor and writer with over fifteen years of experience in journalism. She thrives in researching complicated issues and explain their essence in a plain and clear language to guide you through the world of finance.

Eszter Zalan

Content Editor

Eszter is a Brussels-based content editor and writer with over fifteen years of experience in journalism. She thrives in researching complicated issues and explain their essence in a plain and clear language to guide you through the world of finance.

Everything you find on BrokerChooser is based on reliable data and unbiased information. We combine our 10+ years finance experience with readers feedback. Read more about our methodology

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