How Subdollar Securities are Trading Now

The increase in trading subdollar securities, or securities priced below $1, has been a popular topic of discussion in the last few years after more retail investors entered the market during the COVID-19 pandemic. During the GameStop phenomenon in January 2021, there was a massive increase in trading subdollar securities. The volume appeared to slow down in the months after these events, however that decline did not last. In fact, trading subdollar securities gained popularity again at the end of 2022 and seems to be holding strong into 2023, driving a significant amount of trading activity.

Cboe Retail Priority, a patent pending unique priority allocation model on Cboe EDGX®, has helped more retail investors to access Cboe’s exchange, leading to an increase in trading, including in subdollar securities. The Cboe Execution Consulting Team closely monitors certain trends on Cboe’s exchanges and in the equities markets overall, including in subdollar securities trading volumes. In this analysis we explore a significant shift in subdollar trading activity across all exchanges and, more specifically, retail volume trends in subdollar securities on Cboe EDGX.

Volume Growth Since 2019

Subdollar average daily volume (ADV) has increased 313% since first-quarter 2019, growing from 442 million shares per day to 1.8 billion shares per day in first-quarter 2023. The recent volume growth is attributed to a few securities, such as MULN and XELA, which trade over 213 million and 168 million shares per day, respectively. During the meme stock phenomenon in first-quarter 2021, ADV in subdollar securities peaked at over 1.9 billion shares per day, driven by popular meme stock names, such as Sundial (SNDL), Zomedica Corp (ZOM), Naked Brand Group(NAKD) and Castor Maritime Inc. (CTRM).

The figure below illustrates the ADV growth in subdollar securities and highlights those that traded an average of 100 million shares per day or more, providing evidence that this growth is concentrated in a select number of securities.

*Only symbols with a quarterly ADV greater than 100 million per day are highlighted

Source: SIP

In January 2023, subdollar securities comprised the highest percentage of total market volumes since the meme stock phenomenon in January 2021. Since January 2022, the percentage of the total market comprised of subdollar securities increased 6.4%, sitting at 11.2% in February 2023. In that same timeframe, the S&P 500® Index’s percentage of market volumes decreased 1.4% to 20.8%. The S&P 500 has remained relatively stable as a percentage of Total Composite Volume (TCV) at about 20%, while subdollar securities continue to increase as a percent of total volume.

Source: SIP

Where People are Trading Subdollar Securities

A significant majority of the increased subdollar securities volume comes from off-exchange trading. In first-quarter 2023, the Trade Reporting Facility (TRF) represented about 60.2% market share in subdollar securities. TRF’s market share in these securities peaked in second-quarter 2021 with a market share of 68.1%, an increase of 11.7% from 2020. Because of Retail Priority on Cboe EDGX , Cboe’s market share in subdollar securities remains relatively strong compared to other large exchange groups. Among exchange groups, Cboe ranks first in subdollar securities market share at 13.3% in first-quarter 2023.

Source: SIP

The number of subdollar securities traded has drastically increased since 2019. In first-quarter 2019, there were 532 securities trading at less than $1. In first-quarter 2023, that number has increased 208% to 1,638. However, the number of subdollar securities peaked in fourth-quarter 2022 at 2,019 securities.

Source: SIP

Subdollar Securities as a Percentage of Total Composite Volume

The percentage of daily TCV for the top 25 subdollar securities daily since 2019 peaked on January 5, 2021, at 19.2%. The average percentage of TCV for the top 25 subdollar securities in 2023 year-to-date is 6.9%, up 3.6% from 2022, 3.5% from 2021, and 5.3% from 2019. January 24, 2023 was the third largest trading day of all-time for subdollar securities, representing 18.3% of the market. The two largest trading days for subdollar securities both occurred in January 2021. The high volume day in early 2023 is consistent with the growth trend that has been observed so far this year.

Source: SIP

Growing Popularity

We also considered the average number of securities in the daily top 10 traded securities classified by Exchange Traded Funds (ETFs) and the security’s price. As illustrated below, since first-quarter 2019, the average number of subdollar securities that were in the overall top 10 traded securities increased by two securities, from 1.2 to 3.4 in first-quarter 2023.

Conversely, the average number of securities greater than $1 in the top 10 traded names has decreased since 2019, as well as from its peak during the pandemic. The average number of ETFs in the top 10 decreased meaningfully during the pandemic as investors moved more into single stocks but that trend has receded with changing market conditions in 2022 and 2023.

Source: SIP

New retail traders appear to be gravitating toward even smaller trade sizes in subdollar securities. The figure below shows the average trade size in subdollar securities since 2019. There was a noticeable shift in average trade size during the meme stock phenomenon in 2021.. Between fourth-quarter 2020 and first quarter 2021, trades with a size between 2 and 99 shares increased as a percentage of all trades by 5.9%, while 100-share trades and those between 101 and 9,999 shares decreased the most substantially, by a combined total of 6.1%. Comparatively, since first-quarter 2019, single share trades increased 2.4%, to 5% of all trades in subdollar securities.

Source: SIP

Trading on EDGX

The chart below shows Cboe EDGX’s total retail volume breakdown by security price, highlighting retail investors’ shift to trading subdollar securities. Cboe EDGX is a popular destination for retail investors as EDGX’s book comprises of more than 25% retail volume. EDGX is also home to Cboe’s unique Retail Priority trading mechanism, which benefits individual investors by improving queue priority and time to execution. Since first-quarter 2019, subdollar securities have increased from 12.5% of EDGX retail volume to 31.1%.

Source: Cboe

Conversely, we also looked at subdollar securities volume for retail and institutional traders on EDGX. Similar to the trend in retail volume by price group, the percentage of retail volume made up by subdollar securities increased 12.3% from first-quarter 2019 to 43.1% in first-quarter 2023. However, the percentage of retail volume coming from subdollar securities peaked at 47.1% in third-quarter 2021. A meaningful increase highlighting retail volume made up a considerable amount of EDGX’s volume in 2021.

Source: Cboe

Based on this analysis, trading in subdollar securities has certainly increased in recent years and is a trend to keep a close eye on. This shift has a major impact on the composition of the U.S. equities market and increase in market volumes. The empirical evidence provided by Cboe’s Retail Priority and other retail-attested volume on EDGX makes it clear that there is a direct relationship between the increase in subdollar securities trading and the growth of retail investors. The increase in retail trading and subdollar securities volume presents opportunities for new traders to enter the market and begin trading their views.

Cboe’s Execution Consulting Team will continue to monitor subdollar securities trading activity and other meaningful market trends that may impact your trading experience. Don’t hesitate to reach out to our coverage team with questions and to learn how we can help you optimize your trading experience.

Enhance your Retail Trading Experience with Cboe’s Retail Membership Program

In addition to Retail Priority, Cboe offers a Retail Membership Program on EDGX, providing eligible members with discounted firm membership fees, logical and physical port fees and market data fees. The Retail Membership Program also gives investors the opportunity to participate in enhanced transaction pricing programs for retail orders.