US retail investors are accelerating their use of listed options as part of strategies to manage risk, in stock replacement strategies and as part of more complex strategies traditionally used by institutional investors.
According to TABB Group in new research, “US Retail Options Trading: It Doesn’t Get Any Better Than This,” retail investors are using increasingly more sophisticated strategies enabled through cutting-edge technology provided by retail brokers to access the US-listed options market.
“Retail investors have always maintained an integral role in the US options market but in recent years they’ve ramped up their trading activity,” says Andy Nybo, TABB’s head of derivatives research and author of the report. “Brokers tell us they’re seeing strong revenue gains and growing demand from retail investors who are seeking to become more intimately involved with options trading strategies. At TABB, we expect to see strong growth in 2014 from retail investors as greater adoption and growing complexity of strategies as well as secular shifts into equity assets by retail accounts drive higher volumes, to an average 4.1 million contracts daily, an increase of five per cent from 2013.”
Retail brokers are investing significant resources to build out and revamp trading front-ends to support demands from options trading clients.
Brokers are also providing comprehensive analytical capabilities that rival and frequently surpass functionality imbedded in platforms on institutional trading desks, Nybo says.
“Retail investors are seeing falling commissions and better prices, as competition for the retail investor’s business is allowing brokers to maximise the value of the order flow.”