Last year the number of futures and options traded on exchanges worldwide hit a record level of 137 billion contracts. It’s worth taking a moment to appreciate just how much the industry has grown in the last few years. Last year’s trading volume was 64% higher than the year before, and more than double the total number of contracts that traded in 2021.
Yes, it is clear that much of the growth has been seen in smaller-sized contracts attracting individual or so-called ‘protail’ investors, especially the activity coming out of India’s booming equity options markets. But there have also been significant increases in the trading of interest rate and commodity products that cater to institutional investors and industrial enterprises that need efficient tools for managing the risks triggered by economic uncertainty and market turbulence.
As we look ahead to 2024, it is hard to ignore the expectations of continued, heightened levels of risk brought about by a range of geopolitical issues. The war in Ukraine triggered stresses in the energy and agricultural markets in the past two years and that war is far from over. More recently, the troubles in the Middle East are adding further to those stresses. And now, the impact of strikes on shipping in the Red Sea – a route which accounts for 10-12% of world trade, and 20% of all container shipping, 10% of seaborne oil and 8% of LNG - is threatening to lead to a rise of inflation in countries that have only recently begun to see a return towards more normal levels.
Beyond these points of conflict, 2024 will also see an unprecedented number of national and regional elections that could also spur volatility in financial and commodities markets. Some 50 general and/or presidential elections are taking place globally this year – a number of them could impact our markets in several ways.
In the US, EU and UK, for example, any change of political power – should there be one – could result in policy changes in areas ranging from borrowing and taxation, to energy transition and infrastructure investing. Markets will be assessing how these potential changes in policy direction could impact markets.
Furthermore, regulatory policy could be impacted. The European Parliamentary elections at the beginning of June this year could see a shift in the power base among those overseeing financial market policy as well as a potential change in the leadership at the Commission. The level of regulatory direction coming out of Brussels will reduce significantly for much of the year as a result.
Whatever the outcome of these geopolitical tensions, derivatives markets remain poised to support institutional and individual investors alike in managing the risks of uncertainty. And this time next year, we could well be reviewing yet another record year of trading activity.
