Retail investors giveth, and retail investors taketh away.
For much of the past 6 months, euphoric Robinhood daytraders and other retail investors have been cited among the key drivers for the market’s relentless meltup which culminated earlier this month, incidentally just as that retail darling momo stock TSLA peaked on news it would not be included in the S&P500. One problem: unlike institutional investors who have virtually unlimited access to funds thanks to their prime brokers (until they are margined out of course, often with catastrophic consequences), retail traders are at the mercy of their balance sheet, which in turn is in the hands of their brokerage account such as Robinhood and Interactive Brokers.
Which is why the overnight news that Interactive Brokers, one of the most popular platforms among retail investors, high net worth individuals and family offices was raising its initial and maintenance margins by a whopping 35% sent a ripple across markets: surely there were numerous retail investors who suddenly were facing margin calls, and they had a choice – either add more funds or liquidate positions. Judging by the market’s reaction, many have picked the latter.