For the past four years, JP Morgan Chase & Co (NYSE:JPM) has been conducting an annual online survey among institutional and professional traders (FX traders, rates, and commodities traders) to determine the e-trading trends and the transformational technologies that are shaping the market.
The results for the e-Trading 2020 Survey Macro are in, and unlike other years, JP Morgan expanded the pool of respondents to non-clients as well and thus received a broader response on the factors that traders are concerned about and the trends that interest them the most.
When asked about which potential development they think will have the biggest impact on the markets in 2020, 50% of traders said that they’re concerned about international trade tensions which have hit the world’s largest exporters in 2019 and that are set to continue this year, in the complicated context of the COVID-19 pandemic. The market faces uncertainty, especially in the global travel and transport service export sectors, which have been hit the hardest. There has also been an ongoing slowdown in the global goods trade, but technological developments are expected to soften the impact in the medium and long term.
Next up, 20% of traders were concerned about the U.S. recession risk. Even before the pandemic, the nation’s expansion was believed to be closed to an end (Bloomberg ran a model that placed the odds of a recession at 100%), so now, with the new threat of the pandemic, it’s normal for traders to express concern. Pushing the healthcare system to its capacity and generating record levels of unemployment, the pandemic has disrupted the U.S. economy and the fallout is expected to last for years to come.
The third on the list of concerns was the growth of China (12%), followed by Brexit (4%), and other factors (7%).
Daily Issues Traders Face In 2020
For the fourth year in a row, traders have cited the availability of liquidity as the No. 1 challenge they expect to face (33%). Access to liquidity is always a concern for traders, and now that the number of liquidity providers is decreasing, this trend isn’t exactly surprising. Also tied to liquidity challenges is price transparency, which 15% of traders mentioned as a concern. Apart from these two factors, traders also said that their daily issues include workflow efficiency (19%), meeting the best execution requirements (15%), and low availability of data (15%).
JP Morgan also wanted to analyze the global liquidity landscape; more specifically, the most important criteria that traders take into account when selecting a liquidity source. And here are the results:
- 79% of traders worry most about price consistency
- 70% want that liquidity to be available at times of market volatility
- 47% worry about response times
- 40% care about the market impact
- 32% mentioned the response rate
- 20% worry about hit ratios when selecting a liquidity source
Innovation, Transformational Technologies, And Data
Perhaps the most exciting part of the survey refers to the innovative and transformative technologies that are disrupting trading. These days, there are numerous foreign exchange companies that traders can choose from and many of them are online. Compared to previous years, the number of e-traders has increased considerably and we have technology to thank for it. Technologies such as automated trading systems have also streamlined trading tasks, oftentimes increasing accuracy by minimizing emotions.
Artificial intelligence (AI) and machine learning now play a major part in trading activities, and the response to them is overwhelmingly positive. The e-Trading 2020 Survey revealed that:
- 71% of traders believe that artificial intelligence and machine learning offer them deep data analytics that help them with their daily trading activities.
- 66% of traders believe that artificial intelligence and machine learning optimized trade execution.
- 58% of traders believe that artificial intelligence and machine learning helps them make better trading decisions.
What’s more, traders are using data services to execute trades:
- 82% of traders use real-time data
- 59% use pre-trade transparency data
- 41% use transaction data sharing
As for the most popular tools, 53% of traders need tools that predict market conditions in real time, 33% pre-trade optimizers, and 25% tools that offer trade type historical data.
The increase in e-trading has been consistent across all asset classes and it’s done via multiple channels: APIs, multi-dealer, or single-dealer platforms. More mature markets, such as forex, are expected to hit 100% of trading via e-trading channels within the next two years. According to Scott Wacker, head of e-commerce sales at JP Morgan, trading technologies are improving, and users and traders alike are begging to understand that electronification can be applied to daily trading operations.
What’s even more interesting is that responders said that mobile technology is the most influential aspect of trading right now, even if machine learning is advancing at an unprecedented pace. The two are developing simultaneously, but the focus on mobile is, first and foremost, about access to tools. By the latest estimates, there are 3.5 billion smartphone users in 2020, and people have gotten used to the flexibility they offer; they want to know that they can execute trends on the go, and respond to market movements no matter if they’re at the office, at home, or on vacation. With the increase in security and a better understanding of how mobile technology works, we’ll be seeing traders use smartphones in the detriment of desktops.
Wacker also said that the next step is to apply machine learning to a number of trading systems and to look for the most optimal outcomes in providing liquidity to clients. At the same time, artificial intelligence can help create more personalized solutions that can make decisions for traders. Ultimately, if beginners were to draw one conclusion from this survey, it’s that understanding the way that things have been done in the past is still important, but technology is reshaping the world of trading and it’s important to stay up to date with trends and apply them.