Modeling the Retail Sell Inflection Point

By Thomas Sozzi

Overview

Retail investors have remained steadfast net buyers for 22 consecutive months, continuing to add risk even amid recent market volatility and factor unwinds. 158 straight days of net ETF buying underscores the resilience of retail conviction and a disciplined approach to dip-buying. However, our observational analysis suggests that once volatility surpasses a VIX level of 35, retail behavior shifts meaningfully, with extreme selling activity accelerating – marking this as a potential threshold where retail begins to de-gross. Limited observations in extreme scenarios means results at those levels should be interpreted with caution.

Bullish flows continue despite recent selloff

Despite the recent market selloff, retail inflows remain resilient. Our desk has fielded numerous inquiries last week from clients regarding retail investor behavior – particularly in the context of last week’s earnings and the recent unwind in growth and momentum factors.

Retail investors on our platform have been consistent net buyers for 22 consecutive months, approaching the record streak of 32 months observed between April 2020 and November 2022. More recently, we have highlighted the continued trend of disciplined dip-buying amidst the recent volatility.

^{Source: Citadel Securities; as of 11/20/2025. Figures are for illustrative purposes only. Past performance figures do not guarantee future results.}

What would make retail turn net seller? An observational analysis.

“What might derail the continued buying from retail?”

First, we turn to ETFs. ETF flows serve as an early barometer of retail sentiment given the general tendency for retail to buy-and-hold these types of products. Retail ETF flows on our platform have been net positive for 158 consecutive days, with only 6 days of net ETF selling since the beginning of 2024. The chart below illustrates daily indexed net ETF flows from 2019 – Present, highlighting the recent strength.

^{Source: Citadel Securities; as of 11/20/2025. Figures are for illustrative purposes only. Past performance figures do not guarantee future results.}

To further contextualize retail investor behavior, we analyzed daily net retail activity (expressed as z-score) versus the closing level of the VIX Index. This framework allows us to assess how retail investors respond across different volatility regimes.

The graph below plots VIX on the Y-axis against the daily z-score of net retail flows on our platform since 2019. The relationship loosely forms a “smirk” (analogous to options skew), which we infer as retail investors exhibiting more extreme net trading behavior in higher volatility regimes, with an asymmetric tilt towards larger net selling in these times of market stress.

^{Source: Citadel Securities, Bloomberg; as of 11/20/2025. Figures are for illustrative purposes only. Past performance figures do not guarantee future results.}

Taking this one step further, we cluster different VIX regimes into buckets and count the number of extreme events (which we define as net activity either below -2.0z or greater than +2.0z). Retail investors tend to be fairly balanced in their response as the average level of VIX increases, up until a VIX level of 35. At this point, we observe twice as many extreme net sell days than net buy days, which may imply that a closing level of 35 in VIX is the inflection point where retail may start to de-gross (and possibly capitulate). Keep in mind that there isn’t much data for the extreme cases, so results in those areas should be tested with appropriate caution. In addition, the data appears to exhibit heteroskedasticity, meaning that variability increases in the more extreme cases – so relationships at elevated VIX levels may be less stable.

^{Source: Citadel Securities, Bloomberg; as of 11/20/2025. Figures are for illustrative purposes only. Past performance figures do not guarantee future results.}

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