Innovation has played a key part in futures and derivatives markets since their inception. What started off as a market for corn, wheat and soybeans quickly led to the launch of financial futures and derivatives. Electronic trading brought along new exchanges - and with them new products - and increased access to global markets.
Today, demographic shifts are leading to a growing interest in retail access to these markets, with an interest in digital assets and event contracts. This presents the industry with a significant opportunity to continue its long tradition of innovation.
On 1 May, FIA and the National Futures Association held their third annual ‘retail roundtable’ in Chicago to provide a platform for discussion about the evolving retail trading landscape in futures and derivatives markets. Roundtable participants represented all segments of the industry, including clearing firms, brokers, exchanges and technology vendors.
The retail customer experience came to the fore as a key topic of discussion. Participants agreed that education, including simulated trading and a focus on trading strategies, is foundational to a retail customer’s positive trading experience. Today’s traders learn in front of computer screens, not like many roundtable members who learned in the trading pits from colleagues and competitors. Brokers, exchanges and proprietary trading firms shared how they invest resources and technology to better educate and prepare these types of traders.
Brokers also focused on developing and deploying risk management tools, software and controls. These systems can help protect a customer. Brokers noted that, in some cases, their customer service representatives will reach out directly to customers when their trading activity diverges from usual patterns or when they take on more risk than usual.
Participants also discussed how retail customer demand drives exchanges to list novel products, including digital assets, event contracts and perpetual futures. Over the years, the industry has seen customer demand drive contracts down in size, to micros and nanos. However, customer demand now leads to the listing of incredibly short-dated contracts. One broker, for example, described customer interest leading to the development of hourly prediction market contracts.
Retail interest in derivatives markets presents a significant opportunity for growth in what have traditionally been institutional markets. Roundtables like this help FIA better understand the trends and the growing segment of the market, so it can continue to support responsible innovation.
