It has been a phenomenon of the pandemic era: a new generation of retail investors piling in to the stock market, encouraged by lockdown boredom, a lack of sports betting opportunities, and a hunt for return after interest rates were cut to record lows.

The total number of average daily trades across big us retail brokerages etrade, td ameritrade and charles schwab has increased by three-quarters since january to 6m, according to sundial capital research.

In the process, everyday traders have grabbed a greater share of market liquidity. they now make up 20 per cent of us equity trades, double the total last year, according to internal estimates at citadel securities, the uss biggest market maker. that share approaches 25 per cent on peak days, says joe mecane, its head of execution services.

The brutal price war last year among brokerages to cut trading commissions laid the groundwork for this shift. robinhood, which offers a trading app popular with millennials and led the way on zero-commission products gained 3m users in the first quarter of the year.

The retail bros have been bullish, encapsulated by the stocks only go up mantra of day trader dave portnoy. retail investors have been net buyers of stocks since march, according to broker td ameritrade, focusing on sectors such as technology and consumer goods.

These investors are sometimes dismissed as lacking the sophisticated models and financial analysis of professional managers. but equity buyers who simply rode the market since its coronavirus-induced low in march have enjoyed a more than 40 per cent rise in the blue-chip s&p 500 index, even taking into account this months sell-off.

The nasdaq 100, made up of the tech companies beloved of many retail traders, is up more than 50 per cent in that period and up about a quarter for the year to date.

Should professional investors take notice? though they have helped to stoke the market rally, retail investors are not unduly affecting valuations across the board, say market participants.

But they can have more impact on individual companies, particularly those that are making headlines. you will see retail focusing on stocks that are in the news where there is often short-term volatility and increased market activity, said mr mecane.

Tesla is the epitome of this trend. fans of the electric-car maker, convinced it will become the next apple, have jumped aboard as its share price soared more than 350 per cent this year. but teslas shares have collapsed by more than a fifth this month, underscoring that sky-high valuations can bring both risks and opportunities.

Since retail can comprise a material amount of overall trading, it is important for institutional investors to understand the dynamics of retail activity, added mr mecane.

The retail demand for shares is big enough that you cant completely ignore it, said chandini jain, chief executive of data science group auquan.

And if youre looking to ride the short-term trends in the market, then that is definitely a source [investors] should be looking at, she said. auquan, a london-based start-up, uses social media chatter and stock tip platforms to try and determine where retail money is flowing.

But the further away stock prices get from company fundamentals such as profit or book values, the greater the risk of disappointment.

Youd probably end up seeing a lot of momentum built up by retail trades, and then eventually, not a lot of basis for a lot of stocks to sustain the kind of valuation that thats giving them. and potentially some of them getting discouraged by that, said ms jain.

Plenty of signs of speculative fervour are visible already. some of the frenzied retail buying this year has been of companies that had already filed for bankruptcy trades dubbed a flight to crap by analysts. stock splits in big-name tech stocks like apple have also prompted retail investors to buy in, despite analysts pointing out that such moves should have no impact on the market value of a business.

Institutional investors will always have some advantages over everyday investors, such as scale, and access to products and structures out of reach of novices, said jim paulsen, chief market strategist at the leuthold group.

But despite that edge, the smart money is just as vulnerable to severe market swings as the retail crowd. markets are an equal-opportunity destroyer of wealth, said mr paulsen. it doesnt matter if youre retail or institutional. just ask anyone who was in during march of this year.