Posted by Colin Lambert. Last updated: December 2, 2024
According to a new report, proprietary trading firms largely focused on low-latency trading, are more optimistic for their prospects in 2025, than their peers who operate a more hybrid strategy.
The report, Acuiti’s latest Prop Trading Insight, is based upon a survey of the firm’s expert network, and finds that 64% of those surveyed are predicting an above-average year in 2025. The optimism is driven by expectations on increased market volatility and an expanded trading portfolio of products, as well as enhanced technology infrastructure. Just 3% of those surveyed predicted a worse than average year.
Acuiti says, however, that there is a divergence within firms, with 47% of “ultra-low latency firms” predicting a well above-average year, compared to only 10% of firms using manual or hybrid strategies. Additionally, 19% of firms that described themselves as predominantly algorithmic but not ultra-low latency predicted a well above average year, the firm says.
This disparity between firm types is also evident in investment plans for 2025, Acuiti says, observing that overall, 65% of firms said that their investment budget would be significantly (26%) or slightly (39%) above average next year. This included, however, 54% of ultra-low latency firms that were planning significantly above average investments, more than double the average rate.
Perhaps in keeping with this finding, the report also reveals that 71% of those surveyed expect industry consolidation in the coming 12 months, which might suggest those firms predicated on speed are expected the hybrid players to exit the market – whether this will be good for the market ecosystem is to be seen.
The report also says that these firms are most likely to increase their activity in equity options and FX, with a lqck of diversity in European equity options flows seen as holding that region back.
“These findings point to a growing divide between the top tier 1 trading firms and the tier 2 and 3 and less latency focused firms,” says Ross Lancaster, head of research at Acuiti. “As the top firms invest more in technology, there is a risk that their dominance of the market will continue to grow, further leaving behind smaller firms.”
