Year of the Futures

Posted by Rick Tomsic on April 14, 2015 at 4:07 AM
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We’ve seen many signs in the first quarter of 2015 (and earlier) that favor futures trading. It’s great to see news that brings much-deserved attention to the instrument and we only anticipate that its star will continue to rise, enhancing market opportunities, attracting new participants, and ultimately enriching traders’ lives.

 

1. Futures markets bolstered by an acceleration in volatility.

2015 looks to be a year of movement in terms of some popular futures markets. In addition to geopolitical and policy factors converging to bring volatility to the markets in 2015, crude is less than half the price it was last summer, the euro is down more than 10% this year, and the U.S. stock market has soldiered on for over three years without a correction, defying historical precedence.

 

And both types of traders, speculators AND hedgers, can benefit from an uptick in volatility:

 

Speculative futures traders will readily be on the lookout for opportunities to surface in a volatile market, and the liquidity they maintain is vital to the health of the commodity market. Speculative traders create liquid markets, buying and sell without causing big ripples in prices.

 

By leveraging commodity futures, hedging traders can manage risk against price volatility. While increased leverage also comes with an increased risk of loss, price movement in the liquid futures markets is far less volatile than in what is widely considered to be safer alternatives. By using leverage, a trader can achieve the returns they seek with less price volatility.

 

2. We’re seeing a groundswell of fintech innovations.

2015 is also shaping up to be the year of fintech -- from Bitcoin and Apple Pay, to wearable tech, to a global surge of fintech news and startup competitions -- technological advancements are underway that put the user experience first. Recognition of fintech also abounds in such events as the Benzinga Fintech Awards and the Bobsguide Fintech Innovation Awards. At the heart of the arms race to create better technology with mobile and cloud-based applications lies the ultimate goal: to streamline the user experience, making the user more efficient, to lower costs for the user, and to enhance the user’s overall lifestyle. In 2015 we will apply these principles to the development of our own fintech innovation in the form of a new futures trading experience, Tradovate.

 

3. 2014 witnessed record volumes.

In October of 2014 CME Group set a new overall daily volume record of 39 million options on futures contracts and in March 2015 ICE Futures U.S. set a daily record in mini MSCI complex and mini MSCI EAFE futures. Trends suggest increased volumes will continue in 2015. This is good news for futures and even better news for traders; higher trading volumes shrink the bid-ask spread, providing greater liquidity. Traders can buy and sell when they want without seeing major impact to the price.

 

4. Futures resources and engagement is on the rise.

In January CME Group announced the launch of the Futures Institute, a centralized online platform for futures and options on futures education, trading simulation, and market research. The Futures Institute was created to encourage traders’ development in the futures markets as well test strategies and enhance skills. Through the comprehensive online resource, users can also enter a Futures Challenge with fellow traders. We’re excited to see futures education, engagement opportunities, and awareness rising. It helps existing traders refine their futures knowledge and also creates inroads to attract more traders to futures markets.

 

5. Futures competition among exchanges is heating up.

In March Nasdaq OMX Group announced that they will launch a new energy futures market called Nasdaq Futures, aimed to halve trading costs. The project brings Nasdaq into the ring with Intercontinental Exchange and CME Group, two of the country’s largest energy exchanges. Futures traders are sure to benefit from the resulting competition as it will ideally provide more choices, more products, more liquidity, and of course, lower costs.

 

6. New futures trading contracts are springing up.

In March CME Group and NEO Markets, Inc. announced that the first-ever physically delivered crude oil storage futures contract would be introduced to the market starting March 29th, providing market participants with a new and innovative, exchange-traded futures contract. New futures contracts such as this can enhance market liquidity, attracting new market participants, and expanding product choices.

 

It’s worth noting that futures contracts are also expanding across the globe. In the international derivatives markets, Eurex Exchange announced in February its plan to launch 31 new single stock dividend futures contracts and Euronext announced plans to launch a new premium milling wheat contract in March.

 

7. Winds of change are blowing as final leg of migration to electronic platforms occurs.

In February it was announced that CME Group, the world's largest futures market operator, will shutter almost all of its open-outcry futures pits by July 2nd. We wrote about this in our post, CME Closes Historic Chapter, Sets Tone for Next Generation of Futures Trading, and while some wax nostalgic over the end of an era, we maintain the electronic trading marketplace is poised to gain more market participation. With this evolution, we also foresee that exchanges will develop more robust market data tools and strategy testing platforms to cater to electronic traders.

 

These many signs in Q1 point to a great rest of 2015, which we recognize as the Year of Futures. The Tradovate team and I anticipate that our launch will help draw attention to the expanding opportunities and versatility that futures trading offers, and we’re excited to develop a new user experience - one that cutting edge fintech is driven by.

 

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