Proprietary trading firms have experienced challenging trading conditions in the first half of 2024, however, almost half experienced better conditions than in 1H 2023, the latest Acuiti Proprietary Trading Management Insight Report has found.
Most notably, in this quarter’s Proprietary Trading Management Insight report, US-based proprietary trading firms experienced some of the weakest performance. This bucks a long-standing trend of out-performance against their peers in Europe and Asia and is largely explained by reduced volumes in US options markets.
The quarterly report, which was released today and is produced in partnership with Avelacom, is based on a survey of the Acuiti Proprietary Trading Expert Network, a group of senior executives at over 100 global proprietary trading firms and provides insights into the key trends facing the community.
This quarter’s report looked back on business performance during the first half of the year. It found that, while 47% of firms reported a better business performance than in H1 2023, less than a third said that H1 2024 has been better than an average year.
Proprietary trading revenues are highly dependent on underlying trading volumes. While overall global volumes have increased this year by 75%, according to data from the FIA, volume growth in certain key markets has been muted.
Market conditions favoured ultra-low latency and predominantly algorithmic firms over their peers. Almost 40% of these firms reported a better than average H1, compared with just 15% of firms with lower latency or more manual trading strategies.
"As competition increases, firms are driven to equip themselves with better strategies and technologies," says Aleksey Larichev, CEO of Avelacom. "The report highlights that algorithmic firms using latency-sensitive strategies have performed better, illustrating the importance of keeping up with market changes."
Challenges
Regulation, a lack of volatility in the market, and competition for fills were cited as the top three challenges in H1 2024 by proprietary trading firms. Regulation has steadily climbed the list of challenges over the past three years. It was cited as a significant or critical challenge by a third of firms in H1 2022 and today by over 55%.
Competition for fills has leapt up the list of challenges, rising from just 15% of firms citing it as a major challenge in H1 2022 (and 20% last year) to just over half of firms.
In terms of asset classes, cryptocurrencies and metals performed the best. Commodities also performed well, while FX and equity options performed relatively weakly for firms.
“After stellar years in 2020 and 2021, performance for proprietary trading firms has been more challenging over the past two years,” says Ross Lancaster, head of research at Acuiti.
“However, new markets are providing firms with opportunities and overall the environment remains positive compared to the mid-2010s. And with growing uncertainty around the US election results in November, 2024 still could turn out to be a very good year for the market.”
Other key findings in this quarter’s report include:
- 40% of proprietary trading firms now deploy artificial intelligence or machine learning, with a further 34% actively exploring it
- 82% of proprietary trading firms trading European markets would support alignment of trading calendars among exchanges
- 53% of proprietary trading firms reported increases in margin costs over the past 12 months
- 67% of US proprietary trading firms say that the SEC Dealer Rule is not appropriate for their firm
In addition, we look at how firms are approaching trading in Brazil in the second of our regional focuses.
Download the full report here: https://www.acuiti.io/proprietary-trading-management-insight-report-q3-2024/
