U.S. Equities Volume Drivers: Retail Trading in Subdollar Securities

This is part two of a series focused on the growth in U.S. equities markets. Read part one here.

Key Takeaways

• Subdollar securities was a driver of growth in volumes, leading to a peak quarterly average of 2.04 billion shares traded a day in Q2 2024 and 17.4% of the total market
• Subdollar increased from 12% in Q1 2018 to a peak of 40% in Q2 2024 of EDGXs’ retail volume
• Premarket volumes set a record in Q2 2024, making up 4.05% of total market volume in Q2 2024 and subdollar made up 57% of that volume.

The growth in U.S. equities markets over the past several years has been fueled by several factors, including the influx of retail traders in the market and the increased popularity of subdollar securities. In this analysis, Cboe’s North American Equities Execution Consulting Team details how subdollar securities trading has grown and the impact it’s had on the overall market.

As shared in part one of this series, U.S. equities volume has grown steadily since 2018 and has consistently been above 10 billion shares since 2020. In the same period, subdollar securities trading has continued to gain popularity as more retail traders enter the market. How much was the growth of this segment of U.S. equities impacting the overall market?

The Growth of Subdollar Securities

Subdollar securities trade at a price below $1 and have a minimum pricing increment of $0.0001 compared to $0.01 in securities priced above $1. Subdollar securities that are listed on major exchanges result from a steep drop in price, as all Reg NMS stocks that go public have a minimum bid price of $4 per share. Depending on the primary listing exchange, Reg NMS stocks that drop below $1 are given time for their price to rebound or to perform a reverse split.

In Figure 1 below, the market share of subdollar securities in Q2 2020 was 10.4%, the largest market share for the next eleven quarters. In Q1 2023, subdollar securities surpassed its previous market share record to comprise 12.3% of total market volume. The steady ascent can be seen starting in the second half of 2021 and by Q2 2024, subdollar securities comprised 17.4% market share of total volume, an increase of 513 basis points (bps) from the previous quarter and an ADV of 2.04 billion shares.

Analyzing the influence subdollar securities had on the overall market, Figure 2 shows total market volumes versus the total market volumes excluding subdollar securities, referred to as the rest of market. The gap between the two widens in Q2 2020, with a gap of 1.29 billion shares. A continued separation follows, pushing the gap between the total market and the rest of market to its farthest levels to over 2 billion shares in Q2 2024.

Overall Volume Drivers and the Role of Retail

After identifying which segments of the market were contributing more to the total market, we dove deeper to find the underlying growth behind the subdollar securities in terms of total shares traded, discovering retail trading was one of the key drivers.  

As seen in Figure 3 above, the retail percentage of total market volume on EDGX peaked in Q1 2021, reaching 2.2%. By Q2 2024, more flow moved into subdollar securities, accounting for 40% of EDGX retail volume, up 2,984 bps, and increased to 0.54% of the total market, up 32 bps. On the other hand, the rest of retail volume shrank from 90% to 60% of EDGX retail volume and dropped 113 bps to 0.8% of the total market volume.

Retail as a percentage of subdollar’s overall volumes peaked in Q3 2021 at 47.3%, but only had an ADV of 15.4 million shares. Now, in Q3 2024, subdollar retail flow had an ADV of 63 million shares and was 41.4% of subdollar’s overall flow.

Along with the trend of overall increased retail usage on EDGX, retail participation has ticked up in outside regular market hours, with premarket volumes outpacing post market volumes. Following the retail demand in the premarket session, we analyzed at the trends happening in these trading hours.

Pre-Market Trading

Retail trades more in the premarket trading session and with growing demand from clients in Asia. As seen in Figure 5, the premarket volume was 3.1% of total market volume in Q1 2021 and that was only beaten in Q2 2024 in large part from subdollar securities growing by 1.9% and making up 57% of the total premarket volume.

The retail segment has continued to grow, this time in subdollar securities premarket volumes when stacked up against other parts of the market. The Covid-19 pandemic pushed U.S. equities volumes higher, and the rise of retail trading sustained that heightened volume. Analyzing the growing activity in subdollar securities trading and the participation from the retail segment, it is clear the growth in retail trading has continued.

Cboe has monitored these developments, listened to customer demand and delivered solutions to position EDGX as a retail marketplace of choice. Retail priority on EDGX enhances execution quality and trading outcomes for individual investors by reducing the time to execution through its price-retail-time priority model. Retail-only pricing incentives give low cost remove fees and premium rebates. EDGX Retail Membership Program gives discounts on port fees and market data. Retail Tiers give growing retail firms additional rebates up to $0.0037 / share. In addition, EDGX has a full suite of complementary products and services to execute retail orders, including routing strategies (“ROOC”) and extended hours trading, 4:00 a.m. – 8p.m. EST, with order acceptance starting at 2:30 a.m.. This all results in a high concentration of retail order flow on EDGX, which increases the chance of interacting with a retail order on EDGX.

Cboe has designed retail focused offerings to meet customer demand and will continue to build differentiated products for global market participants. Please reach out to Cboe’s North American Equities coverage team with questions and to learn more about how we can help enhance your trading experience.