FX Markets Brace for Influx of Proprietary Trading Firms in 2024

by Damian Chmiel
  • Firms eye FX trading growth, but investment budgets set to rise.
  • Exchange fees and EU regulations present challenges amid expansion.
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In a proactive move signaling confidence in the financial markets, proprietary trading firms globally are poised to scale up their foreign exchange (FX) trading activities and boost investment budgets in 2024. This development stems from findings in the latest Acuiti Proprietary Trading Management Insight Report, unveiled today (Monday).

Proprietary Trading Firms Gear Up for FX Growth and Investment Spike in 2024

The report, a collaborative effort with Avelacom and produced after surveying senior executives from over a hundred proprietary trading firms, paints a picture of a sector on the brink of significant growth.

With 45% of FX trading entities looking to substantially up their game in the asset class, and a keen interest in equity options, the landscape for 2024 shows a bullish trend. Conversely, cash equities seem to be on a downtrend, especially in Europe, where a notable fraction of firms intend to pare down their exposure.

Source: Acuiti
Source: Acuiti

"The report reveals that proprietary trading firms are willing to invest in improving their connectivity to markets, including exploring new ones," Aleksey Larichev, the Managing Director at Avelacom, commented.

Further diversification is evident as several firms set sights on the cash government bond markets, indicating a strategic move to broaden their trading spectrum. A considerable 63% of these firms are ready to allocate above-average resources toward advancements in algorithmic trading, market access, and data acquisition.

Acuiti's July research pointed out that traders and proprietary trading firms aim to ride the waves of volatility precisely in the most volatile markets where the highest activity is observed.

Acuiti
Source: Acuiti

"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," Larichev added.

One of Acuiti's earlier reports suggested that trading firms are increasingly looking towards Asia in search of new markets.

Rising Fees and Future Regulatory Changes

Yet, it's not all smooth sailing. The report underscores the strain of rising exchange fees which are constricting the range of markets and products firms are willing to trade. For many proprietary trading companies, these costs represent a significant and increasing burden.

Nine out of ten survey participants have reported a rise in exchange fees over the past five years, with nearly all of those not facing higher fees being primarily or exclusively involved in cryptocurrency trading.

Fees
Source: Acuiti

"Exchange costs are an increasing burden for many firms, which are trading fewer products and markets than they would if fees were lower," said Will Mitting, the Founder of Acuiti.

Adding to the complexity is the low awareness of the EU's impending Digital Operational Resilience Act, set to take effect in 2025, which could have significant compliance implications for the firms.

DORA
Source: Acuiti

Amidst these challenges, the report captures a sector in dynamic flux, with over half of the firms trading equity options contemplating 0 Days to Expiration (0DTE) strategies on Eurex, signaling a potential uptick in the product's trade volume come 2024. 0DTE refers to options contracts that expire on the same day they are traded.

0DTE
Source: Acuiti

In its report from the end of October, Acuiti also indicated that there is a noticeable consolidation trend in the FX prime brokerage industry, especially in hedge funds. The study highlighted the growing concerns among fund managers about adverse changes occurring in the sector.

In a proactive move signaling confidence in the financial markets, proprietary trading firms globally are poised to scale up their foreign exchange (FX) trading activities and boost investment budgets in 2024. This development stems from findings in the latest Acuiti Proprietary Trading Management Insight Report, unveiled today (Monday).

Proprietary Trading Firms Gear Up for FX Growth and Investment Spike in 2024

The report, a collaborative effort with Avelacom and produced after surveying senior executives from over a hundred proprietary trading firms, paints a picture of a sector on the brink of significant growth.

With 45% of FX trading entities looking to substantially up their game in the asset class, and a keen interest in equity options, the landscape for 2024 shows a bullish trend. Conversely, cash equities seem to be on a downtrend, especially in Europe, where a notable fraction of firms intend to pare down their exposure.

Source: Acuiti
Source: Acuiti

"The report reveals that proprietary trading firms are willing to invest in improving their connectivity to markets, including exploring new ones," Aleksey Larichev, the Managing Director at Avelacom, commented.

Further diversification is evident as several firms set sights on the cash government bond markets, indicating a strategic move to broaden their trading spectrum. A considerable 63% of these firms are ready to allocate above-average resources toward advancements in algorithmic trading, market access, and data acquisition.

Acuiti's July research pointed out that traders and proprietary trading firms aim to ride the waves of volatility precisely in the most volatile markets where the highest activity is observed.

Acuiti
Source: Acuiti

"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," Larichev added.

One of Acuiti's earlier reports suggested that trading firms are increasingly looking towards Asia in search of new markets.

Rising Fees and Future Regulatory Changes

Yet, it's not all smooth sailing. The report underscores the strain of rising exchange fees which are constricting the range of markets and products firms are willing to trade. For many proprietary trading companies, these costs represent a significant and increasing burden.

Nine out of ten survey participants have reported a rise in exchange fees over the past five years, with nearly all of those not facing higher fees being primarily or exclusively involved in cryptocurrency trading.

Fees
Source: Acuiti

"Exchange costs are an increasing burden for many firms, which are trading fewer products and markets than they would if fees were lower," said Will Mitting, the Founder of Acuiti.

Adding to the complexity is the low awareness of the EU's impending Digital Operational Resilience Act, set to take effect in 2025, which could have significant compliance implications for the firms.

DORA
Source: Acuiti

Amidst these challenges, the report captures a sector in dynamic flux, with over half of the firms trading equity options contemplating 0 Days to Expiration (0DTE) strategies on Eurex, signaling a potential uptick in the product's trade volume come 2024. 0DTE refers to options contracts that expire on the same day they are traded.

0DTE
Source: Acuiti

In its report from the end of October, Acuiti also indicated that there is a noticeable consolidation trend in the FX prime brokerage industry, especially in hedge funds. The study highlighted the growing concerns among fund managers about adverse changes occurring in the sector.

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