Since the 1980s, financial firms on Wall Street have increasingly relied on machines and algorithms to streamline trading and enhance their returns.  Firms like Blackrock, State Street, Goldman Sachs, JP Morgan and others invested heavily in powerful computer hardware.  They then aggressively recruited the top PhDs in math, logic, and computer science to design software to optimize trading results.  By the 2010s up to 70% of all the trades on the New York and NASDAQ stock exchanges were executed by machine algorithms, with no human input other than the employee who wrote the code.

As you might imagine, these firms are now using even faster machines, Artificial Intelligence, to assess risk and find inefficiencies in markets that they can exploit to gain a competitive edge.  Further, these institutions are leveraging billions of dollars to make trades that move the market in one direction or the other.  Given the size and influence of these institutional investors, it would seem that the small, retail investor can do nothing other than go along for the ride, hoping the big players don’t lead them off a cliff.

But something strange happened as these machines became more powerful and ubiquitous.  They gave the retail investor more influence than they ever had before.  What began as a fringe phenomenon during the meme-stock mania of 2021 – when retail traders rapidly drove up shares of companies like GameStop and AMC – has now evolved into a more sustained and influential presence in markets.  Analysts and market participants are saying that this shift is not temporary but indicative of a structural change in market participation.

Retail investors, many of them day-traders or everyday savers, contributed a record amount of capital into stocks, ETFs, options, and other, less traditional, instruments during the year. According to a December 31, 2025 article in the Wall Street Journal, retail trades reached approximately 22% of overall trading volume in October, the highest level seen since the early-2021 episode when the pandemic created a whole class of people with stimulus checks and nowhere to go outside.

With the advance of technology, the average retail investors now have the power of AI assisted trading in the palm of their hand.  The democratization of trading technology is reshaping market dynamics, with retail traders now able to generate rapid price movements, amplify volatility, and impact instruments ranging from stocks to ETFs, options, derivatives and many others.

These developments are raising concerns about market stability and systemic risk. The emphasis on speculative vehicles and a heavy reliance on social-media-propelled trades are contributing to pockets (currently quite small) of irrational pricing that can “confuse” the institutional machines and cause them to make errors they otherwise wouldn’t.  Think of the large, institutional investors as self-driving cars that are programmed to follow normative rules and the retail investor as an erratic pedestrian behaving in a way the car was never programmed to anticipate.  What might happen?

Indeed.  That is why our investment team remains committed to prudent diversification, keeping our eyes on the road ahead where the visibility is clearest and the risks are minimized.