Derivatives Market Sentiment Stays Strong

Perhaps unsurprisingly given how trading firms often prosper in volatile conditions, the Q1 2026 edition of the SGX Global Market Sentiment Index shows continued business optimism amongst respondents, with confidence rising across almost all regions and business segments of the derivatives industry.

The survey, conducted by Acuiti, resulted in an index reading of 75, up from 71 in Q4 2025, but not quite matching the same quarter a year ago, which was 78. North American firms were the most optimistic with a reading of 80%, followed by APAC, which drifted a couple of points lower to around 75, and Europe, which rose slightly to around 70. Although it did slip from Q4, APAC was the only region to register a higher score than Q1 2025.

The role – or more appropriately the impact – of volatility is highlighted when looking at the business segment readings in the survey. More opportunistic players like hedge funds and prop trading firms provided strong confidence readings – as did sell side execution and clearing respondents – while asset managers, representing a more traditional investment approach perhaps, saw confidence slip.

Hedge fund confidence was at its highest in three years at 76, dramatically higher from Q4 2025’s 67 and up a couple of points on Q1 2025. In what is a repeated theme of the report, respondents expected volatility to increase further in the coming months, providing a broad swathe of opportunities. The report notes that hedge fund confidence was strongest in emerging markets.

Prop trading firms also saw a large leap in confidence to accompany the new year, the 77 reading being a 10-point gain from 67 in Q4 2025, and matching Q1 2025’s reading. Q2 2025 saw a peak for hedge fund confidence at 81, nonetheless, the latest reading indicates continued high confidence levels amongst prop firms. Interestingly, the report says that sentiment was particularly strong among firms operating lower-latency strategies, reflecting expectations that markets will experience sustained systemic volatility rather than short-lived episodic shocks.

That said, prop trading firms also reported enhancements to technology infrastructure, boosting execution speed and operational efficiency. Several also highlighted increases in trader headcount, which should lead to increased trading capacity.

The two sell-side sectors surveyed – execution and clearing – both also saw a rise in confidence, the former to 81 from 77 in Q4 2025, and the latter to 84 from 82. Both were, however, down on Q1 2025, by three points and two points respectively. Perhaps reflecting an overlap with the prop firms, the report observes that optimism was particularly strong among non-bank LPs and brokers when it came to execution, while for clearing non-bank FCMs and multinational banks were the most positive.

As noted, however, asset managers’ collective confidence waned in Q1, however this segment has previously also seen large swings in confidence in the SGX report. The overall reading for asset managers was 51, down 10 points from Q4 2025 and down 18 points from Q1 2025. It should be noted, however, that this segment has regularly seen swings of 10 points or more over the past three years.

The report notes that the decline in confidence amongst asset managers reflects concerns over potential sharp declines in asset values, particularly within US equity markets. It adds that several respondents noted that heightened volatility and geopolitical instability are likely to temper overall risk appetite, potentially reducing trading activity.

Regionally, the report says sentiment was mixed, with confidence remaining relatively strong in North America, while sentiment in both Europe and APAC declined to weaker levels during the quarter.

Overall the report provides support to traditional theories on market volatility – market makers and opportunistic investors mostly love it, longer-term investors, managing large pools with the requirement to trade longer and in larger amounts, tend to dislike it. Either way, the survey, which was conducted between November 17 and January 30, certainly hit the spot on predicting sustained volatility, although whether a middle eastern conflict was part of it is anyone’s guess. Volatility is here, however, so the big question now is are they exploiting the opportunity or merely surviving the chaos?