FX trading and investment on the rise: Prop trading firms set for 2024 expansion

Rick Steves

“Proprietary trading firms are looking ahead to 2024 with optimism and planning expansion and increased investment. However, exchange costs are an increasing burden for many firms, which are trading fewer products and markets than they would if fees were lower.”

The latest Acuiti Proprietary Trading Management Insight Report, in partnership with Avelacom, reveals a significant shift in the investment strategies of proprietary trading firms globally.

The report, derived from a survey of senior executives from over 100 proprietary trading firms, indicates a strategic pivot towards expanding foreign exchange (FX) trading and increasing investment budgets in 2024.

FX and Equity Options: The new focus

According to the report, 45% of firms actively trading in FX are gearing up to substantially increase their exposure in this asset class next year. Additionally, there’s a notable interest in expanding into equity options. This move highlights a growing appetite for diversification and leveraging opportunities in these dynamic market segments.

However, not all asset classes are experiencing the same level of enthusiasm. The report points out that nearly a fifth of firms, predominantly European ones dealing in cash equities, are planning to reduce their exposures in this area. Instead, several firms are eyeing expansion into the cash government bond markets, suggesting a strategic realignment in response to evolving market conditions.

The year 2024 is set to witness a significant uptick in investment budgets among proprietary trading firms. With 63% of the surveyed firms planning higher-than-average investments, the focus seems to be on algorithmic trading tools, connecting to new markets, and market data. This trend underscores the industry’s drive towards technological advancement and broader market reach.

Challenges and Opportunities

The report, however, doesn’t shy away from highlighting the challenges facing the industry. Rising exchange fees have been identified as a key concern, impacting the markets and products traded by firms. Additionally, there is a noted low awareness of the EU’s Digital Operational Resilience Act, set to come into force in 2025, among the affected firms.

In the sphere of equity options, over half of the firms are contemplating trading 0DTE on Eurex, indicating potential growth in this product for 2024.

Aleksey Larichev, Managing Director at Avelacom, commented on the findings: “The report reveals that proprietary trading firms are willing to invest in improving their connectivity to markets, including exploring new ones. This shows their plans to expand and optimize their current trading setups. It’s a positive sign that the market is in good shape and working to stay competitive. For Avelacom it means opportunities to help more trading firms gain a competitive edge with our low-latency connectivity and IT infrastructure solutions.”

Will Mitting, founder of Acuiti, reflected on the optimistic outlook and upcoming challenges: “Proprietary trading firms are looking ahead to 2024 with optimism and planning expansion and increased investment. However, exchange costs are an increasing burden for many firms, which are trading fewer products and markets than they would if fees were lower.”

The Acuiti report offers a comprehensive view of the evolving landscape of proprietary trading, marked by an inclination towards FX and equity options expansion, amidst increasing investment budgets.

While opportunities abound, the industry must navigate the challenges of rising exchange fees and regulatory changes. This balance between expansion and adaptation will likely define the proprietary trading sector in the coming year.

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