Proprietary trading firms are planning significant technology investment in 2022 with algo trading tools, co-location infrastructure and market data technology being the top investment priorities, according to the latest Proprietary Trading Management Insight Report from Acuiti.
According to the findings, second tier algo firms appear to be shifting investment away from speed and into smarter trading strategies.
Overall, just 5% of firms were not planning to invest in algorithmic trading tools in 2022, whereas 40% of respondents were planning a big investment here.
A related finding was that firms across the board were also planning significant investment in co-location infrastructure, including a small number of traditionally point and click firms.
Will Mitting, Founder of Acuiti, said: “We asked executives whether latency was becoming more important for their trading strategies”.
“We found that, while for ultra-low latency firms, speed remained central to their strategy as you would expect, it is becoming less important for second tier algorithmic trading firms,” Mitting said.
He said this is an interesting trend with regards to investment and the importance of latency.
“These firms appear to be investing more in being smarter than faster,” he said.
“Conversely, we found that latency was becoming more important for point-and-click and hybrid firms, who have traditionally not invested heavily in low-speed trading infrastructure,” he added.
In addition, the report found that, despite recent falls and uncertainty over the regulatory framework, the sheer scale of volatility in crypto presents enormous opportunities for proprietary trading firms as both retail and institutional activity continues to grow.
Proprietary trading firms see the most opportunity in 2022 in crypto-currencies, equity options and interest rate markets.
The report, which is produced in partnership with Avelacom, is compiled based on anonymous submissions by senior executives in Acuiti’s global proprietary trading management network.
Aleksey Larichev, Founder and Managing Director of Avelacom said: “We have spent the last two years investing heavily in our crypto market infrastructure, which is vindicated by this finding that crypto is seen as the biggest opportunity for professional, proprietary traders in 2022.”
In addition, according to the findings, over 90% of respondents reported that costs increased in 2021, continuing a trend identified by Acuiti in previous years in other research.
Firms were most likely to report increases in market data fees and exchange fees, exceeding the number of firms reporting costs rising from investment or bringing on new staff.
“These findings support long held and growing concerns over the economic dominance of exchanges in the listed derivatives markets and point to a detrimental tax on growth for firms,” the report said.
The report found that optimism among senior proprietary trading executives rose last month with 75% saying that they were either quite (55%) or very (20%) optimistic about the coming quarter. Respondents from the US were the most optimistic followed by Europe (excluding UK) and the UK.
“Executives running businesses that traded point and click or a hybrid of point and click were more optimistic than ultra-low latency and predominantly algo firms,” the report said.
