Retail investors fuelling volumes at top derivatives exchanges 

FIA Boca: Exchange leaders see shift towards smaller contracts and shorter durations 

13 March 2024


A rise in retail participation in derivatives trading, fuelled by advancements in technology and greater accessibility to markets, is helping to drive volumes at some of the world’s largest exchanges, according to the heads of those exchanges at FIA’s Boca conference. 

“We have a new generation of investors that have come into the markets, whether that’s in equities or options, that have really helped to fuel volumes,” said Adena Friedman, chair and chief executive officer of Nasdaq, which operates the second-largest stock market in the US and several equity options markets. She added that she also sees individual investors becoming more engaged in the futures markets, historically dominated by institutional investors and commercial hedgers. 

“The sophistication among individual investors in how they're managing risk and how they're getting more engaged in the futures markets is a structural trend [that] is going to lift volumes and activity,” Friedman said. “It also means that the advancement of technology to make markets accessible to them, to help them manage risk successfully, and to help broker-dealers work with them to manage risk is an area of real focus now.” 

Terry Duffy, chair and CEO of CME Group, which has been attracting retail traders for several years with its micro-sized futures contracts, added that the lines between retail and institutional investors are increasingly becoming blurred due to advances in the availability of analytical tools that use artificial intelligence. 

“As artificial intelligence comes in, somebody with very little capital might have the same information as somebody who has a lot of capital. We won't level the playing field in terms of how much they can invest, but we're going to level the playing field in terms of the knowledge base,” Duffy said.  

“Opportunities are going to be there for them to manage their own risk and I find that exciting. I'm very big on retail going forward and I think what we describe as retail today will be different in the next three to four years. We won't even recognise it,” he said. 

Jeff Sprecher, chair and CEO of Intercontinental Exchange commented that he sees a shift in the mindset of investors towards a much more short-term approach, which is reflected in the rising use of options that expire on the same day.  

“There are a lot of people doing short-dated options, some dollar stocks. I'm sure some new futures will be created that will be event-driven. This may sound negative but on the other hand, don’t we want young people investing in capital markets? I think it's positive, but it's different than, let's say, what our grandparents would have done,” he said. 

Giving a European perspective, Thomas Book, member of the executive board at Deutsche Boerse Group, described retail as a “secular trend” that is very much driven by technology and by easy access to investment. 

“I hope we see more in Europe coming into the market; certainly, we have a lot of catching up compared to the US.” 

Stephane Boujnah, CEO and chair of the managing board at Euronext, added that he was increasingly seeing the crypto markets as an entry point for retail investors. 

The exchange leaders agreed that educating retail investors on the risks of trading is of paramount importance. 

“The key for us as operators is to democratise access to the markets but importantly to make sure we're educating, so retail investors understand the risks of taking,” Friedman said. 

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