John McCrank

NEW YORK, (Reuters) – A rise in options trading by individuals helped raise market volumes to records in 2021. However, it made derivatives trading more difficult for institutional investors according to a Coalition Greenwich report released Wednesday.

Options volume reached a new record of 9.87 billion contracts in 2018, a 32.2% rise over the 2020 year. Options Clearing Corp data revealed that this was a record year for volumes.

According to Shane Swanson (senior market structure analyst and technology analyst at Coalition Greenwich), the number of individuals options account holders increased to their highest level ever. The amount of small trades which indicate retail trades also increased to high levels.

Swanson who was the lead of the study said, “Whether driven by zero-commission trading, meme stock phenomena, or retail investors seeking greater exposure to the markets, retail trading options grew rapidly in 2021.”

The study found that smaller trade volumes affected many firms’ ability to reach their trading goals.

Coalition Greenwich interviewed 24 firms to determine whether retail trading has had any negative effects on trading between June-September. Another 42% reported that it had had some negative impacts.

Swanson explained that this was due to the fact that investment firms have one main objective: To execute trading deals without any market impact. When large amounts of contra-side flows are in single lots or small quantities, it makes it more difficult for larger orders of institutional size.

He stated that the market is more likely to see an order work if it takes longer to complete.