Shares in an over-the-counter traded U.S. healthcare company Signal Advance soared to $70 from 70 cents in under a week after Signal was mistaken for an unlisted texting app also called Signal that Tesla founder Elon Musk had tweeted about, saying "use Signal."
"These are not normal markets!!" -- Deutsche Bank strategist Jim Reid said.
Signal Advance shares have since dropped to $7, but early punters would have netted hefty gains.
Retail broker eToro told Reuters it registered more than 380,000 new users in the first 11 days of 2021, adding to the five million who used it to trade last year. It says a third of its base joined in 2020 when trading on its platform surged five-fold from 2019 to $1.5 trillion.
Retail investors' participation in U.S. equity order flows increased to nearly 20% in 2020 from 15% in 2019, while orders from long-only funds fell to 6.4% last year from 9.7% in 2019, data from Swiss bank UBS showed.
"Historically, people have had to sort of give up their day jobs if they wanted to be a day trader... this is a much different and probably stickier phenomenon than we saw during the dotcom bubble," the head of equity trading strategy at a U.S. bank said.
He was referring to the late-1990s tech stocks run-up which ended with a crash in 2000.
The reasons for the retail rush are well-documented -- lockdowns that boosted savings rates, policy stimulus that has put money into people's pockets, the lack of sporting events to bet on and zero return on cash savings.
More importantly the mushrooming of mobile trading apps have made it easy for amateur stock pickers to access the $85 trillion global stock market.
Robinhood, one of the biggest apps, said it had 13 million users as of last May, half of them first-time investors with a median age of 31 years. It declined to reveal more up-to-date figures.
Some wannabe investors are just teenagers.
Rob Almeida, a portfolio manager at MFS Investment Management said his 16-year old son was mocked by his friend, who runs an investment club at school, for making a 30% return from a MFS fund last year while they were doubling or tripling their money by investing in stocks via mobile apps.
"His buddies were teasing him, because they considered that a pretty meager return. So all of that points to me ... frothiness," Almeida said.
He noted too that the cash flooding into the markets was colliding with tight net supply of new equity, something evident in the performance of new listings, such as AirbnB and DoorDash. Both companies doubled on debut.
A Renaissance ETF IPO that measures the performance of U.S. IPOs is up 200% since March, versus 57% for the benchmark index.
There are signs that retail players are moving to trade derivatives. Almeida noted "a lot more" buying of single-stock options, derivatives that allow holders to buy shares at pre-determined prices.
Volumes of such option contracts surged last month to 60.1 million, almost triple January 2020 levels, based on data from the Options Clearing Corporation, the world's biggest derivatives clearing house.
The trend is worrying because dealers who sell these derivatives must hedge their risk with a long position on the corresponding stock, inflating prices further.
The sheer momentum and prospect of double-digit returns is sucking in more players to the markets. Some market professionals are worried a crash is inevitable.
Keith Temperton, a sales trader at Forte Securities brokerage, blames an "explosion" of chatter on internet forums for "speculative bubbly moves in illiquid small cap names."
"This has not ended well historically," he said.
(Reporting by Thyagaraju Adinarayan and Saikat Chatterjee; Editing by Sujata Rao and Jane Merriman) ((firstname.lastname@example.org; +44 20 7542 7015; Reuters Messaging: email@example.com; Twitter @thyagu))