The rise of the individual investor

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.

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Winch Financial [“Winch”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, no portion of this discussion or information serves as the receipt of, or a substitute for, personalized investment advice from Winch. contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Winch. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Neither Winch’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if Winch is engaged, or continues to be engaged, to provide investment advisory services. Winch is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Winch’s current written disclosure Brochure and Form CRS discussing our advisory services and fees is available for review upon request or at www.winchfinancial.com. Please Note: Winch does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Winch’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a Winch client, please contact Winch, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.