An influx of retail investors in the derivatives market is
driving new trading platforms and specially tailored contracts.
Jonathan Watkins looks at how exchanges and
online platforms are tapping into and fuelling this growing
For nearly a decade, the Korea Exchange was the most
actively traded derivatives exchange in the world, driven
almost solely by retail investors using its KOSPI index
The small contracts
hit nearly 300m trades a month at their peak, before a
politically-fuelled mandate required the exchange to increase
the multiplier five-fold, forcing those retail investors out of
While that kind of popularity could be hard to mirror in the
rest of the world, KX showed the potential harnessed by retail
investors if an exchange gets the formula right.
The Dubai Gold and Commodities Exchange (DGCX) launched mini
Indian Rupee futures last March, which have gone on to become
the second most actively traded contracts on the exchange.
Elsewhere, Hong Kong Exchanges and Clearing (HKEx) lists two
popular mini Hang Seng index derivatives and NYSE Liffe US has
seen strong retail trading on its mini MSCI index
Indian exchange MCX, the Singapore Exchange and
Johannesburgs Safex platform are also among the growing
list of exchanges listing these mini contracts.
Ramping up activity
These products often a fifth or tenth the size
of a standard contract - require traders to commit less
capital, making them more attractive to retail investors.
Retail traders are also increasing their use of US equity
options and last year accounted for almost a quarter of
trading, according to Tabb Group.
Retail investors have always maintained an integral
role in the US options market but in recent years theyve
ramped up their trading activity, says Andy Nybo,
Tabbs head of derivatives research and author of the
Brokers tell us theyre seeing strong revenue
gains and growing demand from retail investors who are seeking
to become more intimately involved with options trading
US exchanges have moved aggressively to tap this growing
interest by launching various mini-options contracts.
They launched in March five contracts for retail investors
that allow clients to gain exposure to a handful of blue chip
US equities without the huge capital commitment of trading the
The mini options are a tenth of the size of standard
products and give investors exposure to options on higher
priced equity and exchange-traded fund products.
Social trading communities
The five options contracts were Amazon, Apple, Google, SPDR
Gold Trust and the S&P500 Index ETF.
Brokers tell us theyre seeing
strong revenue gains and growing demand from retail
Within a couple of months of the launch, the contracts began
to gain traction reaching volumes of nearly half a million, and
have seen a solid growth since.
In December, volumes across the five major underlying stocks
reached almost 700,000, with Apple seeing the lions share
of the action.
As more retail investors get familiar with mini
options we expect to see steady increases in mini
activity, Jeromee Johnson, head of BATS Options, told
With the stock trading around $558 a share - as of
January 15 - more retail investors are likely taking advantage
of the minis on Apple without having to commit as much capital
as they would with a standard contract.
The mini-sized contract is likely also able to
construct a better hedge for those with current small AAPL
Nybo said he expects to see greater use of US options by
retail traders as well as more strategies from the
Rising demand from European retail investors has also fuelled
online trading platforms such as Saxo Banks
TradingFloor.com, which launched this month.
As FOW reported last week, the Danish online specialist has
gone live with a new social trading community which it has
dubbed The Facebook of Trading.
The website allows retail investors to track the activity of
professional traders, equipping a new breed of investor to
trade these markets.
Education, education, education
There is a big trend towards understanding what is
going on the market, how you allocate your resources and your
risk, Kim Fournais, the co-CEO and co-founder of Saxo
Bank, said to FOW.
"You would never advise anyone to start trading
futures or options without understanding what they are
That trend is here to stay. I dont think the
kids of today will use banks the way their parents did, I think
the internet is here to stay and futures and options allow you
to take any kind of risk you want.
Other platforms capitalising on the rush towards these
social networks include Cyprus-based firm eToro, ZuluTrade,
myFxBook and Currensee.
communities feature real traders and offer an insight into
their performance and trading history across multiple
Banks site also allows traders to posts comments, discuss
ideas, and follow each other but there is always the risk that
investors do not fully understanding the complex instruments
they are trading.
institutions have sought to counter these concerns though by
launching educational programmes enabling investors to learn
how to trade derivatives.
plans to launch its own online academy later this year.
very much about education, because you would never advise
anyone to start trading futures or options without
understanding what they are doing, added Fournais.
educational effort is important and we work with exchanges on
Saxo Bank had been working with major derivatives exchange CME
on educating the markets.
Industry Council (OIC) has also been proactive in launching
educational programmes, offering courses and seminars on the
launched a new mobile application for iOS devices earlier this
month allowing users to study strategies and instantly connect
to the investor services live help centre.
investors continue to contribute to a growing derivatives
market, and platforms are adapting to meet their needs through
new product launches.
sufficient knowledge of risk and the uses of the products,
those numbers should continue to rise as platforms tap into