The Covid-19 pandemic has seen a boom in the Retail Trading Market, with trade numbers and new accounts both soaring. Fuelled by extraordinary volatility during March and April and a subsequent turbo charged US market rebound, operators around the world have reported record quarters and are rushing to open up new markets, particularly in Asia. However, as with any industry experiencing a period of rapid growth, platforms need to ensure that they are still getting the basics right. With more and more firms entering the space, and an increasingly knowledgeable clientele, it is vital operators are picking the correct connectivity solutions. Ensuring they have fast and reliable market data feeds, based off solid underlying market fundamentals is more important than ever.
Having worked in the industry for 10 years, I saw first-hand the transformation from a sector still dominated by phone trading, to one that is now at the forefront of the fintech industry. The battleground increasingly centres around who has the smartest mobile trading app, whether you have access to the latest markets or trading tools and a low touch service at a lower cost. A series of new disruptor firms have pioneered commission free trading and are offering everyday investors access to markets once restricted to the richest, with innovations such as fractional trading leading the way. Clients too, have become more savvy. Knowledge of everything from charting, margin trading and home programmed algorithms have all been increasing over the last 10 years. It is against this background that it is essential that operators continue to invest in deterministic and reliable low latency market data feeds and connectivity to ensure they are not being caught short.
Given the ease at which clients can now switch operators and the variety of choices available, any platform downtime caused by poor connectivity can be devastating to a firm’s reputation. Outages by their very nature are likely to occur at exactly the point when clients are looking to trade the most. Periods of high volatility or key checkpoints during the day, such as the European and US market opens are when pressure on the system is at its most intense. Even small downtimes can become extremely costly for a provider as they can be (rightly) forced to concede ground on complaints and trade queries that occur from lost trading opportunities.
The increased use of home algorithmic trading via sophisticated third-party software or platforms has meant that even tiny latencies on a provider’s feed can be exploited. Practices once reserved for institutions are now becoming commonplace for the average retail trader. This is particularly important in markets where returns are often made from comparatively smaller moves, repeated over high volume, such as with FX and equity index futures. This together with the growth of social media, leading to the rapid dissemination of information between the trading community and suddenly weaknesses in your feed can go viral very quickly.
As well as ensuring the underlying connectivity is up to scratch, providers need to make sure that the feeds they are taking are the right mix of cost effective and robust. Ensuring the underlying market has a high level of liquidity will prevent rogue bid/offer spreads feeding into your system, or spikes away from the true BBO. Multi-jurisdictional exchanges such as Cboe Europe – one of the largest truly pan-European equities exchanges by value-traded – offer an attractive way of ticking all these boxes. Within the same feed operators have access to nearly 6000 symbols across national boundaries from a well-established, deep and highly liquid market. Taking this expertise of operating a cross country MTF further, Cboe also recently announced its plans to launch Cboe Europe Derivatives in the first half of 2021, an Amsterdam-based exchange for pan-European equity futures and options. This will also allow market participants to benefit from one single access point, streamlining trading and clearing for these instruments.
The provisioning of new technology, as is so often the case, can quickly expose those parts of an industry that have failed to innovate and adapt to changing circumstances. It is only by continuing to invest in connectivity and reliable market data feeds that trading platforms can survive against increasingly fierce competition. The race to the bottom on spreads and commissions has meant that the battleground has shifted to technology – however, even the fanciest mobile app won’t help if the underlying feed freezes over the non-farms.
By Michael James, Business Development Account Manager – Colt Capital Markets.