Derivatives volumes in Asia-Pacific (APAC) are growing at a considerable rate – contrasting declines in Europe and marginal growth in the US – presenting increased opportunities for European proprietary trading firms and hedge funds.
A report by Acuiti, commissioned by Trading Technologies, found that trading in APAC holds significant potential for firms if challenges unique to markets within the region can be overcome.
Overall, 37% of respondents said that trading in APAC markets was more profitable than trading in Europe, with just under a third of hedge funds noting that the profitability of their trading strategies was significantly higher in APAC than in Europe.
However, although the region presents significant profitability, various challenges exist for European firms trading markets across the region.
Among the challenges, more than half of respondents cited finding the right local partners when required as the most challenges aspect of trading APAC markets.
Other major challenges included understanding local rules and regulations as well as gaining access to regional derivatives markets via their preferred clearing firm.
“APAC is the fastest growing region for listed derivatives trading volumes, and that is fuelling interest in trading in the region among European proprietary trading firms and hedge funds,” said Will Mitting, founder and managing director at Acuiti.
“At the same time, many exchanges have invested in technology and processes designed to make it easier for international trading firms to connect and trade. This is creating a virtuous circle of growth that is set to continue.”
Understanding exchange rules and risk management requirements were found to be the least challenging aspects of trading APAC, with less than 20% of respondents citing these as an issue, respectively.
Elsewhere, technology requirements were lower down the list of challenges, given substantial investments made by third-party front office vendors over the past decade to expand connectivity to exchanges in APAC. This has resulted in reduced cost of entry for clients when engaging in new markets.
“Trading Technologies has long recognised the tremendous trading opportunities in the APAC region. This study clearly demonstrates that these opportunities have only grown,” said Keith Todd, chief executive of Trading Technologies.
“European hedge funds and proprietary trading firms are among those poised to benefit as they learn more about how to navigate some country-specific challenges through education and the right partnerships.”
Earlier this year, a separate Acuiti report found that trading firms are increasingly looking to diversify their trading strategies through entry to new markets, with over half of respondents confirming definite plans to expand to new regions within the next three years.
From the list of respondents, 76% were found to be looking to expand to Asia – with Taiwan specifically top of the priority list, while 67% expressed that South America is a region of focus.
Read more: More than two thirds of traders are looking to diversify through Asia and South America expansion