Trading Firms Are Interested in Emerging Markets, Avelacom Survey Shows

The proprietary trading companies are planning to enter emerging markets for diversification and arbitrage opportunities.

Avelacom, a global connectivity provider for the financial services industry, has revealed the findings of its recent survey and mentioned that proprietary trading firms are considering emerging markets to stabilize the trading revenues.

According to the official announcement, Avelacom conducted the survey in partnership with Acuiti, a market intelligence specialist. The results indicate that 85% of the survey respondents are interested in the emerging markets while 74% said they are planning to begin trading in emerging markets in 2021.

The firms are mainly interested in China and India as nearly 56% of the respondents expressed their plans to take market data from an exchange in China over the next 12 months. Approximately 52% showed optimism regarding India. The firms are also considering Saudi Arabia, Brazil and Mexico as their next trading destination.

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“Proprietary trading firms have long sought diverse revenue sources and the growth of derivatives markets in the emerging market is an opportunity for them to diversify their trading and access arbitrage opportunities, particularly at times when established markets are quieter. Avelacom is responding to this demand by providing a ready-built infrastructure, new connectivity options, and market data solutions for financial institutions that want to expand geographically,” Aleksey Larichev, CEO of Avelacom said in a statement.

Portfolio Diversification

The respondents were asked about the reasons for entering emerging markets along with the barriers to entry. 65% of the respondents said that they are considering emerging markets for portfolio diversification while 62% liked emerging markets because of arbitrage opportunities. The companies mentioned that lack of provision of access from clearing providers, cost of IT infrastructure deployment at an exchange, and uncertain regulations are significant barriers to entry.

“Polarization of month-to-month revenues has been exaggerated by the spread of Covid-19 and the associated volatility, but reflects similar patterns in 2019 and presents a challenge to proprietary trading executives running businesses with large fixed costs. Emerging markets are the key driver of contract volume growth in derivatives markets, creating natural opportunities for proprietary trading firms,” the report says.

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