Goldman Sachs: Retail Trading Accounts for ~20% of US Equity Volume, Preferring High-Valuation and High-Volatility Names

Overview

This Goldman Sachs strategy report provides an in-depth analysis of the current state, scale, and market impact of retail trading in US equities. The report notes that retail trading activity has rebounded significantly amid the recent market rally and the relaxation of regulatory rules (such as the day trader rule). Currently, retail trading volume accounts for approximately 20% of total US equity volume; while this is below the 2021 peak of 24%, it remains well above the 15% level seen a decade ago. Retail investors hold approximately $12 trillion in assets through self-directed brokerage accounts, and their trading behavior exhibits distinct style preferences: they tend to favor small-cap, high-valuation, high-volatility, and heavily shorted stocks. Furthermore, empirical analysis in the report finds that stocks with high retail participation are often associated with higher valuation premiums and volatility, and react more severely to negative fundamental information (such as earnings misses).

Core views

Rebound in Retail Trading Scale and Activity. Goldman Sachs estimates that retail traders hold $12 trillion in equity assets in self-directed brokerage accounts, representing approximately 10% of the total market cap of US corporate equities. Although the asset share is modest, their trading activity is significant, recently accounting for about 20% of total US equity volume. Since mid-April 2026, retail trading volume has increased by 28%, while the Goldman Sachs retail preference stock basket (GSXURFAV) has risen by 29%. On the regulatory front, the day trader rule has been replaced by more lenient margin requirements, further boosting expectations for retail trading activity. Trading Structure and Channel Concentration. Retail order flow is highly concentrated among a few large brokers, with Charles Schwab, Fidelity, and Vanguard accounting for approximately 80% of retail self-directed assets. Over 87% of retail order flow is routed to professional market makers known as "Wholesalers" for internalization, meaning institutional investors typically only indirectly access a very small portion of retail trading activity. Retail orders are more likely to enter traditional exchanges only during periods of high market volatility or when order flow is large and highly correlated. Style Preferences: Small-Cap, High-Valuation, and High Short Interest. Retail trading is concentrated in the Consumer Discretionary and Technology sectors. In terms of stock selection, retail capital significantly favors small-cap stocks (retail share reaches 9% in the smallest market cap quintile of the Russell 3000), high-valuation stocks, and stocks with high short interest. In 2025, the retail trading share in the top 5% of stocks by short interest rose to 13%, up from 11% in 2021. Additionally, retail investors widely use leveraged instruments; the retail trading share in leveraged S&P 500 and Nasdaq 100 ETFs is approximately double that of non-leveraged peer ETFs. Impact on Market Pricing and Volatility. Empirical analysis shows that even after controlling for fundamental factors such as sales growth and profitability, a one standard deviation increase in retail trading activity corresponds to a 0.16 standard deviation increase in the forward EV/Sales multiple (approximately half a turn). Simultaneously, high retail activity is significantly correlated with higher stock volatility. More importantly, stocks with high retail participation exhibit sharper declines following earnings misses, suggesting that retail capital participation may interfere with the normal reflection of fundamental information in prices.

Analysis framework

The report employs a combined top-down and bottom-up analytical framework. First, it uses Federal Reserve Z.1 Flow of Funds data to estimate the direct and indirect holdings of US equities by the household sector, combining this with Cerulli Associates data to break down self-directed brokerage assets. Second, based on trading desk data from Goldman Sachs Global Banking & Markets, it utilizes the identification method proposed by Boehmer et al. (2021) to isolate retail trading volume from Trade Reporting Facility (TRF) data, thereby measuring retail activity. Finally, through cross-sectional regression analysis controlling for fundamental variables (such as earnings and growth), it quantifies the impact of retail trading activity on valuation multiples, volatility, and post-earnings excess returns, thereby revealing the specific mechanisms by which retail capital affects market microstructure and pricing efficiency.

Methodology notes

• Industry/Sector Analysis FrameworkSupply and Demand Framework

  Retail trading as a key party in market liquidity supply and demand, where its order flow structure (e.g., internalization) affects the price discovery mechanism.

  The report explains why institutions struggle to directly perceive retail flow and how this microstructure affects exchange volume in volatile markets by analyzing how retail orders are internalized by wholesalers.

• Valuation Method

  Cross-sectional regression analysis of valuation premiums

  By controlling for fundamental factors (such as sales growth and profit margins), the institution isolates the marginal contribution of retail trading activity to EV/Sales multiples, thereby quantifying the 'retail premium'.

• Quantitative/Factor/Portfolio TheoryBeta/alpha analysis

  Correlation analysis between retail activity and residual volatility

  Regression analysis reveals that after removing fundamental volatility sources, retail trading activity remains significantly positively correlated with stock residual volatility, implying that retail behavior itself may be one of the drivers of volatility.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• GSXURFAV (Goldman Sachs Retail Preference Stock Basket)

  Beneficiary, representing a portfolio of stocks with concentrated retail inflows

  Strengths

  Recently rose 29%, highly synchronized with the rebound in retail trading volume

  Weaknesses

  Constituents mostly feature high valuation and high volatility characteristics, with significant drawdown risk upon earnings misses

  Comparison

  More sensitive to retail sentiment compared to broad market indices

  Risks

  Changes in regulatory policy or tightening of market liquidity could lead to capital outflows

• Charles Schwab (SCHW)

  Beneficiary, one of the largest brokers by retail assets

  Strengths

  Holds a significant share of the ~80% of retail self-directed assets, highest average daily volume in 2025

  Comparison

  Larger asset base but lower per-account trading activity compared to Robinhood

  Risks

  Changes in the interest rate environment affecting net interest income

• Robinhood (HOOD)

  Beneficiary, a typical retail trading platform

  Strengths

  High per-account trading activity, favored by young retail investors

  Weaknesses

  Accounts for only 2% of retail self-directed assets, relatively small scale

  Comparison

  More trading-oriented rather than asset-allocation oriented compared to traditional brokers

  Risks

  Regulatory compliance risks, intensifying market competition

Key data

• Retail Self-Directed Brokerage Asset Size$12 trillionApproximately 10% of total US corporate equity market cap
• Retail Trading Volume Share~20%Recent average level, below the 2021 peak of 24%, above the 15% level from a decade ago
• Recent Increase in Retail Trading Volume28%Since mid-April 2026
• Total Margin Debt at FINRA Member Firms$1.3 trillionAccounts for 52% of total customer balances, a record high
• Margin Balance Share of Major Retail Brokers1.8%Combined margin as a percentage of customer assets for Interactive Brokers, Robinhood, and Charles Schwab, approaching 2021 highs
• Retail Trading Share in Heavily Shorted Stocks13%Retail trading share in the top 5% of stocks by short interest in 2025

Impact & implications

The report argues that the rise of retail trading has altered the market microstructure of US equities. Due to the internalization of a large volume of orders, the information environment faced by traditional institutional investors has changed. High retail participation leads to valuation premiums and abnormal volatility in certain stocks (especially small-cap and high-valuation names), with deeper pullbacks when fundamentals are disproven. For the broader market, retail capital often buys the dip or adds positions via index ETFs during downturns, but also exhibits strong trading intent during sharp individual stock declines, which may exacerbate short-term price deviations. With regulatory easing and the proliferation of leveraged instruments, the influence of retail capital on marginal pricing power in the market may further increase in the future.

Risks

• Tightening of regulatory policies again (e.g., reinstatement of strict day trading restrictions)
• Significant market volatility leading to reduced internalization capacity by wholesalers, triggering liquidity shocks
• Concentrated retail holdings in high-valuation stocks triggering severe sell-offs when fundamentals deteriorate

What to watch

• Sustained changes in retail trading volume during market rebounds and pullbacks
• Whether margin debt levels breach historical extremes and trigger deleveraging risks
• Further trends in the retail trading share of heavily shorted stocks
• Evolution of leveraged ETF asset sizes and retail participation