MW Retail investors never had so many ways to invest. What's at stake in 2025.

By Gordon Gottsegen

New technology is here that can make investing easier - or more complicated - for retail investors

With all the investing tools out there, it's easier than ever for your average retail investor to trade like the Wall Street pros. But access to these tools also opens up the door to a lot of potential risks.

Throughout the years, new technologies and innovations have changed the way investors interact with markets. This past year was no exception; in fact, it was a standout year for retail investors.

In 2024, brokerages, fintech companies and financial institutions launched countless new products that influenced the way retail investors could invest their money while raking in profits. It started as early as January, when the Securities and Exchange Commission gave regulatory approval for spot bitcoin (BTCUSD) exchange-traded funds. This allowed retail investors to buy exposure to cryptocurrencies through their brokerage accounts, instead of requiring them to open a digital wallet to buy crypto directly.

Also read: Small retail investors hold about 9.5% of bitcoin. Here's why that doesn't tell the full story.

The regulatory approval opened the door to more crypto ETFs, and further doors could open next year when SEC Chairman Gary Gensler steps down. Paul Atkins, President-elect Trump's nominated replacement for Gensler, is seen as more friendly toward crypto and in favor of "common sense" regulations. This could mean fewer SEC lawsuits against crypto companies going forward.

"I think there's a sense of relief by a lot of those companies right now," Richard Hong, a partner at law firm Morrison Cohen and a former SEC enforcement lawyer, told MarketWatch. He added that this could create a better regulatory environment for financial companies to conduct their business.

While the SEC still is expected to bring cases that show clear fraud or investor harm, the agency's new leadership may be less proactive about pursuing cases intended to put guardrails on the financial industry - like Gensler's SEC did with crypto.

That could create more breathing room for financial firms to offer their wares to investors. But if you're a retail investor, it's important to remember that, in many cases, you're the customer and these financial companies are trying to sell you something.

Countless new investing products arrived in 2024. There was the launch of fractional fixed income by brokerages like Public and Webull. This allowed investors to buy bonds at a time when yields were historically high, without having to deal with investment minimums that made the asset class inaccessible to smaller investors. Fintech companies also expanded further into fixed income by offering products like high-yield bond accounts and automated bond ladders.

"A ladder is an intelligent way to invest in low-risk Treasurys, but accessing the strategy previously required considerable manual work, high minimums or expensive fees," Dave Myszewski, Wealthfront's vice president of product, told MarketWatch.

Retail investors have been able to invest in Treasurys in the past, but Wealthfront's bond-ladder product uses new technology to make the experience more convenient for retail investors, Myszewski said.

Read more: Retail investors are turning to bonds like never before and brokerages want in

"We are constantly looking for inflection points in technology that enable us to build sophisticated financial products through software and lower the cost to consumers by automating the entire experience," he said. "Technology also compounds: Once we build the infrastructure capabilities needed for one product, we can often use those technical capabilities to deliver additional products in the future and build new products faster."

In 2024, numerous brokerages also revamped their desktop trading platforms in order to incorporate new advanced tools. Those included Fidelity, Moomoo $(FUTU)$, Interactive Brokers Group Inc. $(IBKR)$ and Robinhood Markets (HOOD). These platforms gave retail investors more complex charting and technical analysis tools, as well as better access to market data.

Neil McDonald, Moomoo's chief executive, previously told MarketWatch that the tools brokerages are giving retail investors - for free, in many cases - rivals the technology he had as a professional quantitative trader a decade ago.

"You can do way more scenario analysis within a much shorter time frame," McDonald told MarketWatch in October. "Computational used to be very, very heavy. We made it very light so that the backtesting is super quick. So you can do the work that it would take me a month to do 10 years ago, in a day."

"This is what I had at Citadel [and] JPMorgan 10 years ago," he added.

Read: Retail investors are trading stocks like the pros - so brokers are giving them the tools they want

In October, Robinhood announced its advanced browser-based trading platform, Robinhood Legend. The platform was a departure from the simple UX mobile app that Robinhood was known for, but it did serve the purpose of catering to the increasingly sophisticated Robinhood customer.

According to Steph Guild, Robinhood's head of investment strategy, the launch of Robinhood Legend wasn't just due to advances in technology, but more so to cater to a need that the company identified.

"We said, 'We can't deliver all these new products and not continue to grow the ways in which they can analyze their portfolios and make better decisions,'" Guild told MarketWatch.

Robinhood grew its customer base dramatically during the COVID-19 pandemic, when people were staying home and investing their government stimulus checks. But years later, Robinhood has even more customers, and they've grown increasingly sophisticated - demanding the advanced tools that Robinhood now offers.

Beyond technological advances, new developments in asset classes and market structure have also influenced the new investment products that hit the market. And in 2024, one of the biggest new investment products was event contracts - particularly election-based contracts.

Read: Betting on unknown future events may be the next big thing in hedging your investments

Event contracts: The new asset class of the year

Event contracts, which allow investors to wager money on whether a future event will or won't happen, aren't necessarily a new thing; fintech startup Kalshi has been offering them since 2022. But in 2024, the asset class became more widely accessible to retail investors.

Over the summer, online brokerage Interactive Brokers launched its event-contracts exchange ForecastEx. This launch helped make the asset class more mainstream, as it allowed other financial institutions - including Robinhood - to offer event contracts to their customers.

On top of that, event contracts scored a huge win when a U.S. federal appeals court ruled that financial firms were able to offer event contracts for political events, including the 2024 U.S. elections. Political event contracts were previously banned by the Commodity Futures Trading Commission because the regulatory agency thought they could potentially lead to the gaming of political elections.

Investor advocacy groups like Better Markets have pushed back against election-based event contracts, saying that prediction markets are "no more than gambling."

"Better Markets will continue to oppose industry's attempt to use the backdoor of the CFTC to unleash gambling on elections in the U.S. via event contracts. It is wrong, dangerous, and only a matter of time before that anemic CFTC 'regulation' fails and democracy is undermined," the organization wrote in an email.

Despite the controversy, election contracts were incredibly popular in the lead-up to the 2024 U.S. presidential election. Hundreds of millions of these contracts were traded in less than a month between Interactive Brokers and Robinhood alone.

Read more: After a big 2024 election, why prediction markets could soon eclipse the stock market

Ann H., a 30-something year-old who lives in New York, was one of those investors who bought event contracts in the run-up to the presidential election.

She was walking down the street when a digital billboard for Kalshi caught her eye. The billboard showed a livestream of all the people buying election contracts for candidates Kamala Harris and Donald Trump. She noticed more people buying Trump contracts, and how the odds on Kalshi overwhelmingly favored Trump. Thinking she could make some money betting on the underdog, especially while the polls showed a 50-50 split, she went home, did some research and a few days later bought contracts for Harris.

"I've always been really interested in different ways that you can invest your money," Ann H. told MarketWatch. "Obviously this is not an investment, but it's adjacent to, 'Where can I put my money and and see what happens to it?'"

Ann H. is no stranger to investing: She invests through multiple retirement accounts, a cash brokerage account, a health-savings account and a 529 college-savings plan. She even dabbles in more speculative investments like crypto, and paid attention to GameStop Corp. $(GME)$ when retail investors were buying it amid the so-called meme-stock frenzy. But she sees event contracts as gambling, not investing.

When investing resembles gambling, it can have plenty of negative consequences on the lives of individuals. In some cases, it may lead to gambling addiction. While certain institutional investors may be comfortable taking on leveraged bets, individuals are often investing their life savings and gambling with their financial futures. The personal stakes are much higher.

"I'm probably never [buying event contracts again]. It would have been so much better to invest," Ann H. said.

How should retail investors respond to new investment products?

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MW Retail investors never had so many ways to -2-

While critics of event contracts call them gambling, Tarek Mansour, the founder of Kalshi, has said that all forms of financial innovation have been called gambling when they're first brought to the public.

Regardless of whether that's true or not, it brings up the philosophical question of whether these new ways to invest should be brought to retail investors, or whether investors should be protected from the riskiest investment vehicles.

Robinhood's Guild told MarketWatch that if fintech companies just deliver stocks to retail investors, they aren't providing anything new. She noted that Robinhood's goal is to provide retail investors with all the investment vehicles and tools that high-net-worth individuals and professionals have access to.

"I think the alternative is that it ends up being this bifurcated financial system if you don't continue to provide access to products that [the institutional] subset of investors has access to," Guild told MarketWatch.

New tools may allow retail investors to invest like the pros, but in order to actually do so, individuals have to educate themselves about how to do that. It comes down to trading versus investing, and understanding one's own risk tolerance and investing strategy.

"First and foremost, you want to decide what your needs and goals are from an investment perspective, and then design your overall asset allocation against that," Guild said. "If you stick to that, then what this does is open up the tool kit in ways to implement that."

With all these new ways to invest coming out every year, retail investors must be diligent about doing their homework before they invest. Because 2025 will almost certainly bring even more ways for people to invest their money - and with more ways to invest comes more risk.

-Gordon Gottsegen

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

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