Five months into the worst downturn since the pandemic and Australian retail investors are no longer buying the dip.

Australian brokers Nabtrade and Selfwealth are reporting sharp declines in trading activity in line with competitors overseas as retail investors cool on volatile equity markets trending downwards. Cash holdings are rising rapidly as investors ride the dip and ditch pandemic favourites like Zip.

“Trading volumes are now at pre Covid levels – this is despite having literally twice as many customers, so it’s a meaningful decline, about half what we saw in the peak Covid period,” says Gemma Dale, director of investor behaviour nabtrade.

“There is still ‘some’ buy the dip activity, but it’s very modest compared to two years ago… Investors are very wary of falling knives,” she says.

Retail investor enthusiasm is waning as rising rates, war in Ukraine and on-off covid shutdowns in China usher the S&P 500 into a bear market and the S&P/ASX 200 into a correction. Investors who took to popular trading forums like ASX Stock Tips or Wall Street Bets during the pandemic boom to trade tips and flaunt quick riches are now using commiserating over big losses.

A post titled “How is your portfolio doing? I am down 60%” on Facebook group ASX Stock Tips early Tuesday received over eighty replies including one punter saying, “feels like group therapy, somehow it feels better to know I am not the only one”.

Catastrophic share price declines at pandemic favourites are failing to lure retail investors back, says Dale. Appetite for technology stocks in general or "anything speculative" has completely dried up. Down 88% this year, Zip is barely registering any trades, she adds. The fintech stock was the most popular stock on Superhero and portfolio management platform Sharesight in 2021.

Where investors are buying stocks, they are opting for banks and miners. The top ten trades on nabtrade include BHP, the big four banks and lithium miners such as Pilbara Minerals, says Dale.

Market participants looking for the bear market bottom often cite mass selling from retail investors as a sign. For now, the data suggests investors are nursing savaged portfolios rather than realise losses at fire sale prices. Money continues to flow into the exchange-traded funds popular with many new investors, although inflows are down from last year’s levels.

Chief executive of broker Superhero John Winters says buyers continue to outnumber sellers on volatile trading days. He believes many investors are hoarding cash in anticipation of buying opportunities.

“In volatile markets it’s natural to see two types of investors, those who look at market dips as opportunities and those who shy away to avoid any further dips or losses,” he says.

“This week we have seen record inflows of cash onto the platform as investors get ready to deploy capital into the market."

New normal poses problems for some brokers

Less retail activity is causing issues for many of the upstart brokers who surged on the back of the pandemic boom.

Australia's fourth-largest broker Selfwealth (ASX: SWF) told investors in April it was seeing a post Covid "new normal" as retail investors opted to spend spare cash on travel and entertainment.

Trading volume on the platform fell 10% in the March quarter compared to a year earlier. User growth also slowed dramatically, rising 5% in the three months to March compared to the 9.5% notched over the previous quarter. The Selfwealth share price has halved this year.

Major overseas brokers are reporting a similar story to shareholders nursing big losses. Nasdaq-listed cryptocurrency exchange Coinbase (COIN) announced on Tuesday it would cut nearly a fifth of its workforce as trading volume declined sharply amid plummeting prices for digital assets.

Retail trading app Robinhood (HOOD) announced in April monthly active users fell 10% in March 2022 versus a year before. Cryptocurrency transactions also plummeted. Robinhood shares are down 61% year to date and the company plans to cut 9% of staff.

"For most of our history, Robinhood has operated in a period of low interest rates, low inflation and rising markets. Our customers are now experiencing all three of these trends going in the opposite direction, perhaps for the first time in their lives," said Robinhood Chief Executive Officer Vlad Tenev on a call with analysts.