Trends in trading for 2021

What can we expect to see in terms of trading trends over the course of 2021?

The consultancy highlights 11 key areas within the report that it believes will shape trading in 2021.

The first of these is not a carryover from 2020 but an echo from just over a decade ago and that is regulatory reform. In the wake of the 2008 GFC, the authorities moved to introduce regulation aimed at preventing a re-occurrence of the credit crunch and subsequent market crash.
Greenwich believes that under the Biden administration the US SEC will seek to gain greater control and oversight of US bond trading, Both government and municipal and the increasingly popular electronic execution venues for these products.

The second key trend for 2021 is the continued diversification of exchanges some of whom will derive ever more of their income from non-trade related revenues.

The recent purchase of Refinitiv by the London Stock Exchange Group is a prime example of this trend but both Nasdaq and ICE are increasingly data-oriented. The latter earning around a third of its revenues from data services.
Bloc trading systems and venues that offer a guaranteed market on close order type are increasingly popular according to the report.

Equity traders have been happy to experiment with alternative exchanges and new order types it seems. Three new exchanges were launched in the US in Q3 2020, the Long-Term Stock Exchange (LTSE), the Members Exchange (MEMX) and the Miami Pearl Equities Exchange (MIAX Equities) each of which offers a distinctive take on the equities trading space.

At the top end, the use of netting services such as CLS allows large traders to monitor their exposure, net their balances, thus reducing the number of settlements/payments required. Whilst making the most efficient use of their funding.

The attractions of netting and or central clearing of trades will become more important to non-bank market makers and other smaller counterparties, who are increasingly frustrated by margin requirements and credit limits.

Alongside the growth in commission-free retail trading which exploded in 2020, as people stuck at home with time on their hands took up day trading, we saw an increasing interest in listed options.

The Greenwich report attributes that interest to: “The move to zero commissions, the launch of retail options trading apps, and the failure of traditional hedges” adding that “While trading volumes in most financial instruments declined after the government intervention calmed markets in the spring, single-stock listed options volume kept on growing”

Judging by the findings of this report 2021 could be a year of opportunity bolstered by innovation and a willingness to change or try something new and that’s very much to be welcomed.