Retail trading is one of the fastest growing dimensions of the exchange-traded derivatives markets. This trend picked up speed during the pandemic, and it shows no signs of slowing down.
According to the Commodity Futures Trading Commission, US retail trading volume in futures contracts now averages about 50% higher than the pre-pandemic era.
Last week, FIA and the National Futures Association (NFA) held a ‘retail roundtable’ in Chicago – our second of its kind – to learn more about this trend. Roundtable participants represented all segments of the industry, including clearing firms, brokers, exchanges, and technology vendors.
During our first roundtable event in 2023, we established that the rise in retail participation was here to stay. This time, we focused on the technology and products driving the interest of retail participation in listed derivatives markets.
The evolution of technology has been incredible, resulting in improved access to markets from both an institutional and retail standpoint. Today, the emergence of AI is putting our entire industry at the precipice of change. Brokerage firms are looking at the opportunities of AI – primarily building out customer enhancement features as well as thinking about ways to improve middle and back-office operations and risk controls.
Brokerage firms have also turned to technology to develop self-service tools for traders. These tools can help retail traders limit their losses and implement risk management strategies more efficiently. Brokers are also using technology to tailor educational offerings to the unique needs of their clients, and the products they trade in.
While we agree that retail participation in our markets is here to stay, barriers still exist. From a global perspective, certain jurisdictions have implemented laws and regulations that treat the risks of regulated exchange-traded products the same as off-exchange products. Other barriers include the costs associated with exchange-traded products, such as market data, the cost of capital, and a lack of 24/7 market access for many venues and products.
Boy has this world changed. When I was a Commissioner and Acting Chair of the CFTC, I worried about the growth in the retail forex markets. At the time, the CFTC was combatting significant retail fraud and abuse—mostly in highly leveraged off-exchange foreign currency contracts. The CFTC and NFA worked together to stamp out fraud and shut down the bad actors with much success.
The growth of retail market participation today feels different. Brokers and exchanges are investing resources and technology to better educate and meet the unique needs of their customers. And despite this growth, trade abuse practices among retail participants are at an all-time low, according to NFA. I see this in part due to the success of the NFA and CFTC shutting down illicit participants. Just as important, credit goes to the rise of legitimate brokerage firms in the space with better education, investment tools and risk controls.
I’ve really enjoyed the opportunity to sit down and learn more from FIA members that work every day to meet their customers’ needs. I also appreciate the partnership that NFA has shown in working with FIA to better understand this growing segment. I look forward to working with our members, regulators, and policymakers as we nurture this growing segment of the marketplace.
