# Analysis-Financial literacy or luck? The year small-time traders made a big impact
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-12-28
Category: FINANCE
Category URL: https://financedigest.com/category/finance
Meta Title: How Emily Lost $670,000: The Rise and Fall of a Small-Time
Meta Description: Discover how small-time investors like Emily, who dabbled in equity options trading, faced devastating losses in the stock market boom of 2021.
URL: https://financedigest.com/analysis-financial-literacy-or-luck-the-year-small-time-traders-made-a-big-impacthtml

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By Tommy Wilkes, Saqib Iqbal Ahmed and Elizabeth Howcroft

LONDON/NEW YORK (Reuters) – In May, San Diego-based Emily was feeling flush from a year of double-digit gains earned from trading stocks. Equity options, which some fellow stay-at-home investors were dabbling in, would juice up her returns, she decided.

Emily was among the army of small-time investors who shook up [stock markets](https://www.financedigest.com/the-secret-to-stock-market-success.html "The Secret to Stock Market Success") in 2021. Some earned fortunes by squeezing out hedge funds from short [positions on so-called “meme” stocks](https://www.financedigest.com/oil-stocks-thrust-london-shares-to-positive-2023-start.html "Oil stocks thrust London shares to positive 2023 start") such as retailer GameStop and cinema group AMC Entertainment.

But AMC proved to be Emily’s downfall. As its shares hovered around $15, she began [selling “naked call options” that allowed holders to buy underlying stock from her at pre-agreed price](https://www.financedigest.com/3-tricks-to-get-a-better-price-when-selling-your-car.html "3 Tricks To Get a Better Price When Selling Your Car"). Instead of [falling as expected](https://www.financedigest.com/uk-manufacturers-expect-output-to-fall-3-2-in-2023.html "UK manufacturers expect output to fall 3.2% in 2023"), however, AMC stock rocketed.

Naked options meant Emily did not actually own the shares. When AMC shares hit $72.62 on June 2, margin [calls kicked in – essentially a demand for cash](https://www.financedigest.com/monte-dei-paschis-cash-call-93-covered-so-far-despite-low-shareholder-take-up.html "Monte dei Paschi’s cash call 93% covered so far despite low shareholder take-up") to top up her brokerage account.

“I was on the phone with (brokerage) TD Ameritrade’s margin team, telling them to give me more time … but it was either I sell it or they sell it,” she said. Eventually, she said she liquidated her portfolio, losing $670,000.

![](https://www.globalbankingandfinance.com/wp-content/uploads/2021/12/amc.jpg)

For a related graphic on AMC Surge, click: https://fingfx.thomsonreuters.com/gfx/mkt/akvezodylpr/amc.PNG

Emily is not the trader’s real name but she provided documents confirming her identity. Reuters could not independently verify the size of her [losses but reviewed brokerage statements showing she sold sizeable call options on AMC and other stocks](https://www.financedigest.com/stocks-with-greater-socially-responsible-investor-demand-saw-weaker-losses-during-the-covid-19-crash.html "Stocks with greater socially responsible investor demand saw weaker losses during the COVID-19 crash") in May.

“It was very devastating. I couldn’t sleep,” Emily said. Having quit her human resources [job at the end of 2019 to trade full time](https://www.financedigest.com/britains-purplebricks-to-cut-more-than-10-of-jobs-the-times.html "Britain’s Purplebricks to cut more than 10% of jobs – The Times"), she now works as a delivery driver.

Her [account is a cautionary tale of what can happen when booming markets tempt inexperienced investors to risk](https://www.financedigest.com/accountants-risk-missing-post-brexit-opportunities.html "Accountants risk missing post-Brexit opportunities") it all.

But for every Emily, there is a small-time [trader who surfed this year’s stock market](https://www.financedigest.com/analysis-bond-traders-get-their-swagger-back-in-rate-obsessed-markets.html "Analysis-Bond traders get their swagger back in rate-obsessed markets") boom, energised by economic recovery, central bank money-printing and government cash handouts.

TD Ameritrade, the broker Emily used, says along with broker Schwab, it added six million new accounts this year.

Conditions were ripe for retail trading even pre-pandemic, as new mobile [platforms enabled individuals to buy stocks](https://www.financedigest.com/stock-trading-platforms-for-beginners.html "Stock Trading Platforms for Beginners"), or fractions of stocks, at tiny or even non-existent commissions.

“Everyone can get their bit of the pie,” said Ben Phillips, a 30-year old London-based pilot who started trading in 2019. He calls himself a long-term investor, but also day trades “as a bit of fun, a bit of gambling”.

The retail wave was the “main reason” global equity demand [reached $1.1 trillion this year](https://www.financedigest.com/philips-expects-to-reach-recall-settlements-this-year.html "Philips expects to reach recall settlements this year"), JPMorgan strategist Nikolaos Panigirtzoglou said.

By acting as momentum traders, retail investors will most likely [continue to propagate the equity markets](https://www.financedigest.com/continual-inventions-to-accelerate-the-banana-flakes-market.html "Continual Inventions To Accelerate The Banana Flakes Market"), at least for the coming year. They will have no alternatives because [interest rates](https://www.financedigest.com/interest-rate-and-recession-fears-knock-stocks-and-oil.html "Interest rate and recession fears knock stocks and oil") will stay near 0%,” he added.

BIG BUYERS

Retail trading, unlike meme crazes, seems unlikely to fade.

U.S. [retail traders](https://www.financedigest.com/analysis-u-s-retail-traders-pile-back-into-options-as-meme-stock-mania-flares.html "Analysis-U.S. retail traders pile back into options as meme-stock mania flares") have bought a net $281 billion worth of U.S. [stocks so far this year](https://www.financedigest.com/world-stocks-rally-nikkei-closes-at-33-year-peak.html "World stocks rally, Nikkei closes at 33-year peak"), against $240 billion in 2020 and $38 billion in 2019, according to Vanda.

Many forayed into equity options, lifting U.S. volumes more than 40% from 2020, analytics firm Trade Alert estimates.

They also account for up to half the [trading in single-stock options – wagers on individual](https://www.financedigest.com/how-to-trade-forex-and-succeed-as-an-individual.html "How to Trade Forex and Succeed as an Individual") shares – according to JPMorgan. That in [turn took such options’ share of total option volumes to a record high this year](https://www.financedigest.com/2043-the-year-britain-will-turn-cashless.html "2043: The year Britain will turn cashless"), Reuters analysis of Trade Alert data shows.

![](https://onlineworldnews.com/wp-content/uploads/2021/12/314.jpg)

For a related graphic on Equity options, click: https://fingfx.thomsonreuters.com/gfx/mkt/znpnexymnvl/equity%20options.PNG

The retail frenzy is most pronounced in U.S. markets and even platforms popular in [Europe say](https://www.financedigest.com/europe-power-firms-need-1-5-trillion-euros-in-margin-calls-equinor-says.html "Europe power firms need 1.5 trillion euros in margin calls, Equinor says") traffic is generally highest in U.S. companies such as Tesla, Nio, Apple, Amazon and GameStop.

But the trend is broadening.

[Russia’s Moscow Exchange says](https://www.financedigest.com/renault-to-offload-its-stake-in-lada-maker-for-one-rouble-russia-says.html "Renault to offload its stake in Lada maker for one rouble, Russia says") 26 million retail accounts are registered with it, up four-fold from early 2020, and both the bourse and brokerage Tinkoff plan to expand trading hours, including into the weekend.

In India, 19% of trading in November was by mobile phone – one barometer of retail activity – according to Bombay [Stock Exchange data](https://www.financedigest.com/stocks-sag-as-hawkish-fed-cools-china-rally-awaits-us-jobs-data.html "Stocks sag as hawkish Fed cools China rally; awaits US jobs data"), versus 7% in November 2019.

SLOWDOWN

Trading activity growth has slowed, possibly as central [banks signal higher interest rates](https://www.financedigest.com/bank-of-englands-mann-doubles-down-on-backing-for-rate-hikes.html "Bank of England’s Mann doubles down on backing for rate hikes") are coming.

Brokerage eToro’s [online platform](https://www.financedigest.com/jetlearn-the-worlds-first-web-3-0-online-academy-for-k-12-raises-e1-2m-in-seed-round-to-launch-its-platform-in-the-uk.html "JetLearn, the world’s first Web 3.0 online academy for K-12, raises €1.2m in seed round to launch its platform in the UK"), which has two-thirds of its customers in Europe, saw 106 million trades in the third quarter of 2021, half of the first quarter total, though well above early-2019 levels of 63 million.

Meagre [returns elsewhere persuaded Phillips](https://www.financedigest.com/bloomfest-2021-raise-the-roof-returns-to-the-virtual-stage-with-mp-jess-phillips-headlining-a-stellar-line-up.html "BloomFest 2021: Raise The Roof returns to the virtual stage with MP Jess Phillips headlining a stellar line up"), the pilot, to start trading in late 2019.

While his Tesla holdings were hit hard by the March 2020 sell-off, he bought more after watching YouTube videos where traders advised watchers to [“buy the dip.”](https://www.financedigest.com/cryptoverse-buying-the-dip-bitcoins-a-rates-rookie.html "Cryptoverse: Buying the dip? Bitcoin’s a rates rookie")

The subsequent bounce quadrupled Phillips’ initial 15,000 pound ($20,100) outlay, he said, but he has no [plans to sell](https://www.financedigest.com/bank-of-england-sets-out-plans-to-sell-23-billion-corporate-bond-stockpile.html "Bank of England sets out plans to sell  billion corporate bond stockpile"), citing his “10-year conviction” on Tesla.

Others such as Dan, a 24-year-old student from northern England, caught the trading bug through “boredom” and reading online chatrooms such as ‘WallStreetBets’ that [pumped meme stocks](https://www.financedigest.com/chatgpt-mania-pumps-up-chinese-ai-technology-stocks.html "ChatGPT mania pumps up Chinese AI technology stocks").

Requesting his full name not be used, Dan [says he made](https://www.financedigest.com/in-a-stadium-of-their-own-migrant-workers-say-their-sweat-made-world-cup-happen.html "In a stadium of their own, migrant workers say their sweat made World Cup happen") four times his 1,000 pound investment in GameStop, though friends who got in late lost money.

He has since quit day trading, calling it “luck,” but invests in [stocks via a British](https://www.financedigest.com/looks-arent-everything-british-supermarkets-to-stock-misshapen-fruit-amid-drought.html "Looks aren’t everything – British supermarkets to stock misshapen fruit amid drought") savings account. The [experience had “helped me be more financially](https://www.financedigest.com/how-financial-metrics-can-drive-the-subscriber-experience.html "How Financial Metrics can Drive the Subscriber Experience ") literate,” he added.

Emily, the Californian trader, also still trades but in smaller volumes.

She hopes one day to rebuild her portfolio.

($1 = 0.7454 pounds)

(Additional reporting by Andrey Ostroukh in Moscow Editing by Sujata Rao and Mark Potter)


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