Tradovate Futures Trading Blog

Democratization Of The Futures Markets: Leveling the Playing Field

Posted by Diane Saucier on January 12, 2016 at 2:13 PM
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What might 2016 have in store for the futures community? I keep coming back to a trend I’ve been talking about for some time now: the democratization of the futures market.

Recent years have seen the cost of technology drop while the trading platforms available to the retail market have begun offering more sophisticated functionality in terms of automated trading, analytics, risk management and co-located exchange access. The difference between what institutional traders have access to and what the retail trader may be using continues to shrink. At the same time, the arms race toward “zero latency” appears to have neared its natural conclusion, at least for most market participants. While the fastest of the fast continue to shave nanoseconds utilizing GPUs, hardware acceleration, millimeter wave and other advanced technologies, most of the market has been priced out of the race. In addition, with the current regulatory pressure on high frequency trading, anti-wash trades, and so on, potentially providing speed bumps to the market, it may be that the most important differentiator today is no longer speed but, just as in the bad old days, a profitable trading strategy.


However, effectively executing a trading strategy requires quality information, and while the retail futures trader may now have access to technology rivaling the professionals, especially with the advent of cloud-based and mobile trading platforms, their access to good and timely information may still present a challenge. Of course there is no shortage of market data, analytics and even social media-based market sentiment available to the retail player, but the professional trader sitting in front of a Bloomberg terminal still has the speed advantage where market information is concerned. And possibly even more of an edge when it comes to differentiating good information from bad.


2016 also looks to be a better year for the retail trader looking for a broker. The near zero interest rate environment of the last several years, along with increased regulatory costs, has squeezed FCM margins and squeezed many brokers out of the business. With last month’s NFA barring of another FCM, the number of active clearing brokers fell to 54. That number is down from 91 less than two years ago, and from 190 in 2005. Together with the spectacular failures of FCMs such as MF Global and PFG, retail futures traders may have found it difficult to find a broker that offered reasonably priced trading and actually wanted their account. But with interest rates looking to finally rise, following the December Fed rate hike, and technology costs dropping, opportunities for brokers to offer quality market access to the retail trader should improve. And if those brokers can find a way to offer innovative technology that allows the retail trader to access the market securely on the go, so much the better for everyone.


Looking ahead to 2016, it should be an interesting year, bringing with it a more level playing field for the retail futures trader. 


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