FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.
Retail trading and options trading have a close Venn diagram relationship, as many retail traders buy and sell puts and calls, and many options traders are individuals not affiliated with any financial institution.
So it made perfect sense for the Security Traders Association to run Retail Investing and Listed Options sequentially on Wednesday afternoon at its annual Market Structure Conference in Washington, DC.
Both panels assessed the past, present and future of their respective areas, with somewhat similar broad themes: volumes have continued to boom beyond expectations and the outlook for the future is constructive, though there are some areas of concern.
The retail panel noted that one year ago, there was an expectation for a pullback given political uncertainty ahead, but that didn’t happen. Instead, ETFs and options have seen record inflows amid “incredible thematic momentum,” largely around advances in artificial intelligence.
Reasons for optimism include modernization initiatives at industry regulator Finra, potential clarity around the order protection rule, more sophistication on the part of retail investors, and a sizable wealth transfer that’s coming up for the younger generation.
Concerns for retail investors include low-price, low-float stocks that sometimes see extreme price swings; listing standards for IPOs of some foreign-domiciled companies; and the proliferation of reverse stock splits.
Reviews on 24-hour trading were mixed: one panelist said volume is still too low and should be more like crypto, while another panelist said certain times, such as the night of Sunday October 12, have a lot of activity and show the long-term potential for extended hours market activity.
Regarding what might be discussed on the retail panel next year, panelists cited innovation, market access, technology, education, AI, and digital assets.
The options panel noted that the 17 busiest-ever days in cleared volumes have occurred this year. Growth has been driven and sustained by short-dated options, an expanded kit of trading tools, education, and influencers.
Anecdotally, one panelist said one can learn how to trade zero-days-to-expiration (0DTE) options from watching videos on YouTube. Another panelist said they’ve been encountering people socially who trade options, whereas it used to be that the mention of options prompted eyes to glaze over.
There is concern about “uncharted territory” in aggregate numbers, and whether market structure in a very interconnected options industry can handle much higher volumes. One panelist said “we are seeing issues here and there” with today’s volumes.
The options panel generally expects growth to continue, especially globally, though the macro environment is a risk to that.
