Growth of U.S. Equities Volumes and Rise of Retail

U.S. equities market share dynamics have evolved significantly in the last several years. New exchanges and market participants — especially retail participants — entered the landscape, and innovative product offerings were launched. As a result, trading outcomes for retail participants have improved. In its latest analysis series, Cboe’s North American Equities Execution Consulting team explores how the rise of retail trading has contributed to growth in U.S. equities volumes, especially in subdollar securities.

Key Takeaways

• U.S. equities average daily volume (ADV) has grown steadily since 2018
• ADV post-pandemic is at a new norm of over 10 billion shares, despite a decrease in volatility
• Increase in retail trading is one of the contributing factors to the growth in volumes

Growing U.S. Equities Volumes

U.S. equities volumes shifted upward post-pandemic, as seen in Figure 1 below. ADV climbed 62.4% to 11 billion shares in Q1 2020 and has since maintained new norms with the help of higher retail participation. Notional volumes followed a similar path as average daily notional value (ADNV) grew 65.7% to $506 billion in Q1 2020.

This growth is particularly impressive when we look at one of the factors that historically is correlated with volume growth – volatility. To measure volatility, we used the Cboe Volatility Index^® (“VIX Index”). VIX^® is a measure of future market volatility — based on a basket of options of the S&P 500 Index — and is the key measure for market volatility.

Historically, as U.S. equities volumes grew, the VIX ^® Index climbed. An interesting divergence from this pattern occurred in Q1 2021 during the meme-stock phenomenon. The VIX ^® Index decreased 2.42 points from 25.62 to 23.20 and total market ADV increased by 4.2 billion shares to 14.7 billion shares. Similarly, a longer occurrence happened between Q3 2022 and Q2 2024 when the total market ADV increased by 586 million shares and the VIX ^® Index decreased by 11.02 points.

This is important context for understanding the underlying market dynamics over the last several years. One contributing factor for this could be the rise in retail trading. We measured retail activity through two proxies: retail-attested orders and pre-market trading.

Retail-Attested Orders on EDGX

Retail-attested orders on Cboe’s EDGX Equities Exchange served as an exact measurement of retail volume on the exchange, however it does not cover the entire market. EDGX captures retail through extended execution instructions placed by member firms, either as a retail order or a retail priority order. Retail priority orders on EDGX change the standard price-time allocation model to a price-capacity-time priority model which improves execution quality for investors. Orders that are submitted as retail priority will have priority ahead of all other available non-retail priority interest at the same price level. Posting at the front of the order queue for the same-priced orders submitted on EDGX reduces the time to execution and have both faster time to first fill and time to first full fill rates when compared to non-retail priority orders.

EDGX retail followed a similar path to the overall market and peaked in Q1 2021 but remained at elevated levels. In Figure 3, EDGX retail as a percentage of the total market volume sat at 1.3% and traded an ADV of 147 million shares in Q3 2024, up 176% from Q1 2018 and 85% from Q1 2020.

Pre-Market Trading

Premarket trading is our next proxy for retail growth. The premarket is broken down into three trading sessions, the 4-7 a.m. session, the 7-8 a.m. session, and the 8-9:30 a.m. session. More functionalities have been introduced and added to the segments before the 8-9:30 a.m. session to meet global customer demand, with the aim to support overseas retail investors, such as those located in Asia, to trade U.S. securities in their own time zone. In 2021, Cboe introduced early trading hours from 4-7 a.m., and moved the acceptance of orders from 3:30 a.m. to 2:30am as a result of continued interest during global trading hours. Retail investors have been a big part of the global customer demand for early trading hours.

As seen in Figure 4 above, premarket volumes saw a massive spike of 191% to 452 million shares in ADV that was driven from meme-stock phenomenon. After the drop from the meme-stock phenomenon highs in Q1 2021, premarket volumes have grown in terms of both shares traded and as a percentage of total market volume in Q2 2024, sitting at an ADV of 476 million shares and 4% of the market. Over that time, the 4-7am trading session almost doubled its ADV and percentage of total premarket volumes.

By both these proxies, we can see that retail trading increased along with the overall U.S. trading volumes. In the next piece of this series, we focus on how the growth of subdollar securities trading contributed to the overall growth of U.S. equities volumes, and how retail trading is influencing that trend in particular.

Stay tuned for Part Two of this series, where we will explore growth of subdollar securities trading, and influence of retail on that segment.