Proprietary trading executives across the world expect interest rate derivatives to be the most profitable of all asset classes for proprietary trading firms in 2023. In addition, they see great potential in equity options trading, although in what turns out to be a reversal of last year's trend, they expect greater profitability performance from interest rate contracts.

These projections are based on findings published in the Q1 2023 Proprietary Trading Management Insight Report produced by the management intelligence platform Acquiti, in partnership with Avelacom, a provider of low latency connectivity , IT infrastructure and data solutions to market markers and arbitrage traders. The report is based on a survey of over 100 senior proprietary trading executives who are members of the Acuiti Proprietary Trading Expert Network.

“Listed interest rate contracts and equity options were seen to have significant potential, with volatility in both underlying markets set to continue through this year as rates markets adjust to central bank policy tightening and equity markets feel the knock-on effects of an economic slowdown and the more restrictive financing environment that those market conditions are creating,” the Acquiti report explained.

Prop Firms Count on Crypto despite Chaotic 2022

According to the report, the proprietary trading executives see significant potential for profits in energy and commodities. For commodities, proprietary trading firms (prop firms) are more bullish than last year. In 2022, the firms projected the asset class “as one of the few potential safe havens in an inflationary and volatile market environment.”

In addition, despite the turbulence that rocked the cryptocurrency industry last year, about half of the trading executives still see opportunities in trading digital assets. This is most likely a result of the recent improvements in the price of Bitcoin, the report noted. However, the Acuti-Avelacom report pointed out that proprietary trading firms that engage in crypto trading “are taking out default insurance and reducing the number of exchanges they trade on in the wake of the collapse of FTX.”

Proprietary Trading Execs Report a ‘Very Strong’ 2022

Furthermore, the report says proprietary trading executives last year saw “a very strong year” as almost 70% of them reported better than average annual profitability. They attributed this to higher volatility which increased volumes and opportunity. This came even as the cost base of most proprietary trading firms shot up in 2022 with staffing and market data fees rising at the fastest pace.

Furthermore, as a result of the market outcome last year, the trading executives have projected “a generally bullish outlook” for the early days of 2023. However, despite expectations of a strong year in 2023, challenges remain, the report noted.

“Liquidity remains an issue across global markets and, in particular, in Europe,” the report says, adding that how best to improve this remains a source of debate.