Volatility
is the main driving force of financial markets. Where volatility appears, there
is also increased trading activity by traders and investment firms. The latest
data suggests that participants are looking for new products that allow them to
leverage market volatility better.
A recent
study by Acuiti, conducted in association with MIAX, suggests a surge in demand
for volatility products in the derivatives markets. The research reveals that
firms and traders are increasingly looking to hedge risk and profit from the
spikes in volatility, a characteristic of equity markets since 2020.
According
to the study named ‘Expanding Horizons in Volatility Trading’, 44% of the
Futures Commission Merchants (FCMs) reported increased demand for trading
volatility since 2020 from their client base. This research involved 94
proprietary trading firms, hedge funds, banks, interdealer brokers, and major
FCMs serving the derivatives market.
The
findings suggest that firms trading volatility are keen to expand the ecosystem with new tradable products parallel to established ones.
Moreover, the respondents expressed a desire for innovative products that could
reduce trading costs and improve execution, such as futures and options with
smaller tick sizes.
Traders are
calling on exchanges to innovate and introduce new concepts to the market, with
methodology viewed as a crucial factor for any firm considering a new product. One
notable finding is the strong demand for new derivatives contracts among
volatility traders. This indicates a significant appetite for expanding their
trading options within the volatility trading community.
“There is
significant room for innovation in volatility markets,” Ross Lancaster, the
Head of Research at Acuiti, commented. “Different products with different
methodologies will enable firms to trade across different measures of
volatility, expanding the strategies used and creating basis and arbitrage trading
opportunities.”
The report
also suggests that volatility trading is expected to experience substantial
growth in the future. Many firms are planning to adopt this asset class and
trade new products alongside their existing ones, further driving the expansion
of volatility trading.
Index
methodology emerges as a crucial factor for most market participants. The
success of any new contract is heavily influenced by the methodology used to
calculate the index, making it an important consideration for traders and
investors.
Additionally,
the report reveals a growing trend in the popularity of short-dated options
trading. This trend has the potential to greatly impact expectations for listed
volatility products and their associated calculations.
In another report published recently, Acuiti revealed that Asia is currently the most popular region for trading new markets among proprietary trading firms, hedge funds and bank execution and trading desks.
SPIKES vs VIX
The VIX,
offered by the CBOE, is the most popular volatility product. It calculates
volatility based on S&P 500 options traded exclusively on its exchange . On
the other hand, MIAX provides its own volatility index called SPIKES, which
measures 30-day expected volatility using options on the SPDR S&P 500 ETF,
the world’s largest exchange-traded fund.
VIX. Source: Tradingview.com
“Demand for
volatility products across futures, options and ETFs remains strong, with
market participants continuing to look for ways to manage their risk and hedge
portfolios even during times of low volatility,” Kaitlin Meyer, VP of Marketing
and Sales at MIAX, commented.
Meyer
highlighted that SPIKES Volatility Products offer traders an alternative when
trading volatility, boasting a more robust methodology and lower exchange fees
to support their strategies.
A
significant finding of the report was the willingness of volatility traders to
diversify their trading by including new volatility products. As much as 79% of
the respondents expressed their openness to trading SPIKES alongside
established volatility products.
Volatility
is the main driving force of financial markets. Where volatility appears, there
is also increased trading activity by traders and investment firms. The latest
data suggests that participants are looking for new products that allow them to
leverage market volatility better.
A recent
study by Acuiti, conducted in association with MIAX, suggests a surge in demand
for volatility products in the derivatives markets. The research reveals that
firms and traders are increasingly looking to hedge risk and profit from the
spikes in volatility, a characteristic of equity markets since 2020.
According
to the study named ‘Expanding Horizons in Volatility Trading’, 44% of the
Futures Commission Merchants (FCMs) reported increased demand for trading
volatility since 2020 from their client base. This research involved 94
proprietary trading firms, hedge funds, banks, interdealer brokers, and major
FCMs serving the derivatives market.
The
findings suggest that firms trading volatility are keen to expand the ecosystem with new tradable products parallel to established ones.
Moreover, the respondents expressed a desire for innovative products that could
reduce trading costs and improve execution, such as futures and options with
smaller tick sizes.
Traders are
calling on exchanges to innovate and introduce new concepts to the market, with
methodology viewed as a crucial factor for any firm considering a new product. One
notable finding is the strong demand for new derivatives contracts among
volatility traders. This indicates a significant appetite for expanding their
trading options within the volatility trading community.
“There is
significant room for innovation in volatility markets,” Ross Lancaster, the
Head of Research at Acuiti, commented. “Different products with different
methodologies will enable firms to trade across different measures of
volatility, expanding the strategies used and creating basis and arbitrage trading
opportunities.”
The report
also suggests that volatility trading is expected to experience substantial
growth in the future. Many firms are planning to adopt this asset class and
trade new products alongside their existing ones, further driving the expansion
of volatility trading.
Index
methodology emerges as a crucial factor for most market participants. The
success of any new contract is heavily influenced by the methodology used to
calculate the index, making it an important consideration for traders and
investors.
Additionally,
the report reveals a growing trend in the popularity of short-dated options
trading. This trend has the potential to greatly impact expectations for listed
volatility products and their associated calculations.
In another report published recently, Acuiti revealed that Asia is currently the most popular region for trading new markets among proprietary trading firms, hedge funds and bank execution and trading desks.
SPIKES vs VIX
The VIX,
offered by the CBOE, is the most popular volatility product. It calculates
volatility based on S&P 500 options traded exclusively on its exchange . On
the other hand, MIAX provides its own volatility index called SPIKES, which
measures 30-day expected volatility using options on the SPDR S&P 500 ETF,
the world’s largest exchange-traded fund.
VIX. Source: Tradingview.com
“Demand for
volatility products across futures, options and ETFs remains strong, with
market participants continuing to look for ways to manage their risk and hedge
portfolios even during times of low volatility,” Kaitlin Meyer, VP of Marketing
and Sales at MIAX, commented.
Meyer
highlighted that SPIKES Volatility Products offer traders an alternative when
trading volatility, boasting a more robust methodology and lower exchange fees
to support their strategies.
A
significant finding of the report was the willingness of volatility traders to
diversify their trading by including new volatility products. As much as 79% of
the respondents expressed their openness to trading SPIKES alongside
established volatility products.
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- Source: https://www.financemagnates.com//forex/traders-want-to-catch-the-volatility-wave-in-trading-study-finds/
