If there was one thing to expect in 2016 it was the unexpected. No one would have expected the success of Brexit, Donald Trump, or indeed the Chicago Cubs. Other expected things that didn’t happen included a liquidity crisis and a drop in the blockchain. To add further uncertainty to the markets there’s also the potential that the financial regulations and laws the industry has spent a lot of time and money adapting to could be reversed.
Even so, things have never looked better for people in the capital markets. Bank revenue is up and this trend should continue. There’s been a rise in interest rates, and banks are making more money, which means the market is better overall. So here’s our look at some of the top trading trends of 2017.
Regulations Will be Balanced
Washington has been led by Democrats since the crisis and these Democrats believed the way to keep the system safe and efficient was through capital markets regulations. This is the reason that Dodd-Frank passed and was the driving force behind the agendas of CFTC and SEC.
Things are going to change when the Republican president and his Republican Congress take charge. Any proposals that were once lip service and sound bites should be taken as seriously as possible now Republicans can pass them.
It’s expected that Volcker Rule will be softened, and we also expect a revamp or repeal of Reg AT and Reg NMS. It’s also expected that this move towards publically reporting US Treasury Trades will slow down if not stopped.
However Dodd-Frank is unlikely to be repealed. Some of the legislation the Democrats introduced was good, including moving to central clearing, and rolling back everything would just damage the market.
The Trump Bump will Continue
The 10-year U.S Treasury rate was 1.77% the Friday before the election. Just 2 weeks later the yield was up by 59 points and it only continued to rise. Inflation and interest rates are expected to rise as a result of higher government spending and lower taxes. This would be good for capital markets. There’s still some concern caused by the potential immigration rules and trade wars, but the hope is that Washington will only bring about measured change.
Volatility remains muted, but volumes are going up, which is supporting a rise in bank profits across various trading businesses. The effect is similar to the bump Brexit gave to bank earnings in the third quarter of 2016. A Trump bump might have been unexpected, but it certainly happened.
ETF-s Continue to Grow Despite Limits
The ETF market, and passive trading along with it, are expected to grow even more in 2017. The rise in ETF trading will be driven by robo advisors and an increase in demand for liquid fixed-income exposure. Many people also consider ETFs to be derivative alternatives. Research from Greenwich Associates suggests that over 2017 half of assets managers will use ETFs to replace some of their derivatives positions. It’s also expected that commissions on ETF trades will grow in 2017 after reaching a height of over $800 million in the US.
Even though passive investing has become more popular, it still has its limits. While it sounds like it’s years away there is still the inevitable point where money taken out of active strategies will tip the opportunity to find alpha and cause money to come back in. To put it in layman’s terms; you might walk past a penny on the street but you’d never walk past $20.
Of course if you’re going to take advantage of these trading trends of 2017 you’re going to need a trading platform. Experts agree that Metatrader 4 is one of the best trading platforms out there on the market. Try it for yourself and see what all the fuss is about.