Who Are Retail Investors?
Retail investors include everyone from high-income professionals managing large investment portfolios to working-class individuals with small IRA accounts. They trade through discount brokers and mobile apps. They collectively represent the majority of the account-holder universe of U.S. brokerage firms. Their trading activity, while individually small, aggregates to an enormous fraction of total market volume.
The Distribution of Impact
Market structure costs — including PFOF-related execution quality differences — fall disproportionately on active retail traders: investors who trade frequently and in larger sizes. Passive investors who hold index funds rarely trade and are minimally affected. Active individual stock traders, day traders, and retail options traders are most exposed to execution quality differences.
Retail Investors and Democracy
The broad ownership of equities by ordinary Americans creates a democratic stake in financial market integrity. When market structures systematically transfer value from retail investors to financial intermediaries — through mechanisms that are invisible and poorly understood — this is a form of wealth redistribution that escapes ordinary democratic accountability. In The Ethics Reporter's view, this dynamic deserves sustained public attention.
The Power of Collective Action
Retail investors individually have limited power to affect market structure, but collectively they have significant power through political advocacy, regulatory comment letters, and consumer choice. The 2021 GameStop episode demonstrated the potential of organized retail investor communities to force public attention to market structure issues. The Ethics Reporter supports informed retail investor advocacy and provides tools and information to enable it.