Finding Liquidity in Derivatives Instruments Is Traders’ Biggest Challenge

Recent numbers gathered by Westborough, Mass.-based TABB Group underscore equity derivatives traders' intense focus on finding liquidity. Out of 55 U.S. traders surveyed, 56 percent said that finding liquidity in derivative instruments is by far their biggest challenge. Tying for a distant second place among traders' challenges are trading costs and lack of electronic markets, each of which came in at 19 percent.

TABB Group notes that despite substantial growth in derivatives trading in recent years, much of equity derivatives volume is concentrated in the most-liquid contracts, and trading activity is concentrated in popular indices, large-cap options and broad-based index futures. Meanwhile, specialized funds are growing and experiencing the pains from the shortage of liquidity in obscure names or sectors when using the derivatives markets to meet their goals, the advisory firm asserts. <<<