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“The retail investor is back,” Cramer told viewers on Wednesday, and the numbers prove it. He recommended Knight Capital [MOS
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] as a play on the trend.
Trading volume at Charles Schwab [SCHW
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], TD Ameritrade [AMTD
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] and E*TRADE Financial [ETFC
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] jumped 14% from July to August, The Wall Street Journal reported, while Knight Capital [NITE
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] earned a respectable 7.7% increase. And all of this took place during one of the slowest periods of the year, summer, when everyone’s on vacation. More and more people are diving in and out of small, speculative stocks, and the rest of us have a chance to game it.
The retail investor’s return is about more than just low commissions, Cramer said. A number of key changes have helped to level the playing field for the little guy. First, trades are executed in as little as 30 milliseconds, allowing traders to get the prices they see on-screen at the instant they make the exchange. Second, 93% of all orders trade at the best price possible, meaning investors get a price that’s at or better than the national bid or best offer. And third, 45% of all orders are price improved, up from 25% five years ago. So almost half of the time regular investors are getting a better price than the stated bid or offer. That didn’t happen when Cramer started trading in the 1980s.
You’ll hear a lot about how flash trading, high-frequency trading and “dark pools” of capital are unfair to retail investors, but they aren’t the threat they’re made out to be. In fact, so-called dark pools are “just fluid, private institutional stocks markets,” Cramer said, that trade outside normal exchanges. They add liquidity to the market and help investors get the prices they want when they buy or sell a stock. If anything, dark pools are “fast and clean and honest.” And Knight Capital is the leading source of off-exchange liquidity in US equities.
That’s right, not the NYSE [NYX
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] – NITE. Knight Capital handles over 5 million trades a day, mostly for retail clients. The company is what’s called a “market maker,” meaning it instantly takes the other side of the trade for the best bid or offer, giving ordinary investors great prices. This is, obviously, quite appealing to smaller traders, and its’ a big reason the first half of 2009 say trades at Knight up 123% year-over-year.
On top of that, Knight’s daily share volume increased 103% over the same time period, and daily dollar volume climbed 26%. The company on Tuesday reported that daily dollar volume in August came in 8% over July, while daily share volume was a whopping 53% more. Also, both the company’s Nasdaq and listed market shares rose month to month as well. These numbers paint a pretty good picture of Knight’s overall trajectory: It’s headed higher.
Cramer said he thinks the share price is, too. Investors have added $3.15, or 17%, to NITE since reporting earnings in late July, and that trend should continue. He urged viewers to get into Knight Capital before the move.
“I think it’s a buy, buy, buy,” Cramer said.
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