What was once called dumb money by professional asset managers has become a potent market force.
The evolution of retail traders — coordinating at times through social media and message boards — is one of the biggest financial stories of the year. And hedge funds are now well aware of what happens when you don't pay attention to what retail traders are doing.
In the immediate aftermath of the GameStop short squeeze that crushed funds like Melvin Capital, hedge funds were looking for datasets to track online conversations. However, flow data on the favorite securities of the online crowd has been hard to come by. Unlike massive asset managers, retail traders don't need to disclose what positions they are selling or holding.
Robinhood's decision to shut off the data it was selling on its users' favorite stocks of the day sent managers like Point72 scrambling at the end of last summer, for example.
Vanda Research, a London-based macro research outfit, has begun to fill the void for funds desperate to stay on top of the latest retail trader moves.
The firm launched its retail trading flow database VandaTrack in February, which tracks all retail flow going in and out of US stocks and ETFs. It plans to expand into options as well.
Vanda Research declined to share how it collects this data, but said it is all publicly available information — which is critically important for hedge funds worried about insider trading.
The firm allows users to plug directly into the data via Amazon Web Services, but also offers an easy-to-follow dashboard on its site. Vanda Research also puts out a weekly report on retail traders for clients who'd prefer to get updates that way.
"We felt there was a gap in the market" once Robinhood shut off its data, Angus Hume, CEO of Vanda, told Insider. The firm originally focused on creating macro research reports for clients, giving them "a one-to-three-month view of the market."
The macro reports are still the firm's main source of revenue, but VandaTrack has been of interest to hedge funds as well as ETF managers and corporations, which want to get a sense of the retail ownership of their securities.
"It's been quite interesting to see how different market participants are using the data," Hume said.
Vanda sees the database as an extension of what it already provides given retail traders' current market-moving abilities. Simply put, professional traders cannot ignore the power of day traders, Hume said.
"They're a lot like CTAs, they're momentum drivers," Hume said. "Every major US equity move since April of last year has been predicated by moves in retail."
In January, the firm plans to add options data to the database, as well as "chatter tracking," which will show which tickers are being discussed in places like r/WallStreetBets.
"We're growing and expanding — it's an exciting time," Hume said.
