The Most Active Investors Trade Far More Than the Rest of Investors

Clients of a British broker whose trading activity ranked in the top 10% initiated an average of 69 trades per year. In contrast, the remaining 80% of investors traded an average of just six times per year.

The most active investors trade far more frequently than the overwhelming majority of investors do. Clients of a British broker whose trading activity ranked in the top 10% initiated an average of 69 trades per year. This compares to 23 trades per year for the next decile group of investors (those whose trading activity ranked them in the top 80th to 90th percentile). In contrast, the remaining 80% of investors traded an average of just six times per year.

The most frequent traders also committed more dollars per trade then their less active peers. Those in the top decile allocated a median of 1,195 pounds (about $1,528 at April 2017 exchange rates) per trade versus 926 pounds (about $1,184) for the bottom 80% of investors. They also sold far more frequently, an indication of higher levels of portfolio turnover. Sell transactions accounted for nearly 39% of all trades for the most active 10% of investors. In contrast, sell transactions accounted for approximately 28% of trades for the bottom 80% of investors, as measured by trading frequency.

There were common traits shared by many of the most active traders. They were significantly more likely to be men than women. They were comparatively young as a group. (Age was found to a have a negative relationship with trading frequency, with the number of trades decreasing relative to increases in age.) These traders tended to use both the internet and the telephone to place trades. Though the internet was most commonly used to place trades, telephone usage may have been related to accessing advisory services. The study’s authors found a positive relationship between using professional advice and more frequent trading.

An age difference also existed in the use of stop losses. The investors who most often used stop losses were “significantly younger on average than investors who did not.”

The findings were based on analysis of data obtained from a United Kingdom brokerage firm. This firm was described as having an approximate 6% share of the total UK market as of year-end 2009. Data was provided for 7,200 investors over the period of July 2006 through December 2009.

Source: “Who Trades Profusely? The Characteristics of Individual Investors Who Trade Frequently,” Daniel W. Richards and Gizelle D. Willows, Global Finance Journal, 2017.