Volatility Helps Prop Trading Firms: Report

Listed interest rate derivatives and commodities futures and options performed best for proprietary trading firms in the first half of 2022 as fears of a recession and soaring inflation caused volatility across global markets, according to the Q2 Acuiti Proprietary Trading Managers’ Insight Report, conducted in partnership with Avelacom.

The report, which is based upon a quarterly survey of the Acuiti Proprietary Trading Expert Network, a group of over 100 senior proprietary trading executives from across the globe, found that 58% of firms reported commodities trading to be either exceptionally or very profitable while over half of respondents said the same for listed interest rates.

Interestingly the report finds that cryptocurrency trading firms also performed well with over half of firms reporting strong profitability in that asset class. This contrasts with evidence from the CTA and hedge fund world where firms investing in crypto have suffered steep declines over the first half of the year. Acuiti says, however, the recent falls in crypto prices have not deterred traditional proprietary trading firms from entering the market. Overall, 22% of respondents said that they had accelerated plans to enter the market as a result of the volatility. 13% had increased trading and just 3% had exited the market.

Unsurprisingly, the sustained volatility experienced during the first half of the year has benefitted proprietary trading firms with 76% of the network reporting a better than average six months.

This quarter’s report also analysed technology set ups at proprietary trading firms and found significant levels of in-house development across a range of functions.

Respondents also gave their views on how well third-party vendors served the proprietary trading market and found strong demand for more specialist risk management software that reflected the complexities of proprietary trading.

“Ultra-low latency firms have the most unique requirements towards technology set ups. That creates opportunities for third-party vendors that can provide services to these types of firms and cover their needs,” says Aleksey Larichev, CEO of Avelacom.

Sentiment among senior proprietary trading executives fell slightly last quarter but remained high as managers maintain expectations of continued volatility in the second half of the year.

“Volatility has remained elevated during the first six months of 2022 and this has increased the requirement for firms to hedge and reposition,” says Will Mitting, founder of Acuiti. “Proprietary trading firms provide liquidity to listed markets and their role is particularly important during times of market stress.”