Tighter monetary policies and rising inflation will likely continue into 2023, which could mean an impending recession for Europe. On the other hand, this situation could be good news for the financial markets, bringing trading opportunities in multiple asset classes. However, making the most of opportunities in volatile markets requires powerful tools and minimal order execution latency. This information makes proprietary trading a popular choice for navigating uncertain market conditions. Here is what to expect next year.
Economists predict Europe might enter into a recession by the end of 2022, given its strong dependence on oil and gas imports. Soaring oil and gas prices could push inflation in the continent into the double digits, which would then impact consumer confidence. Business activity could also diminish due to reduced demand.
Given these expectations, the earnings estimates appear too high for 2023. A decrease in consumer spending and demand amid a recession could lead to lower earnings. The markets still need to fully price the level to which inflation and interest rates might rise next year. A recession would be a significant headwind for risk assets. Going by historical prices, share prices tend to trough during the first half of a recession, which is also true for spreads.
Navigating the Financial Markets in 2023
Once market expectations of interest rate hikes overshoot the needed rate adjustments, equities and bonds might stabilize and rebound, which has historically been seen by economists towards the end of a central bank tightening cycle. Once market pessimism reaches its peak, the only way forward is to overcome concerns and look on the brighter side. The ensuing market volatility then brings opportunities for active traders across asset classes.
The forex markets also bring exciting opportunities. Analysts predict greater volatility and fewer trends for the FX markets in 2023. A decrease in global trade could limit gains for pro-cyclical currencies, while the EUR/USD could end 2022 at parity again. This pair could set the tone for other European currencies. The Swedish krona could struggle to enter a sustained uptrend, given its high exposure to the EU’s growth story.
On the other hand, the CHF could outperform the GBP as the new government in the UK strives to restore the economy with its Austerity 2.0 plan.
The year could prove to be a mixed bag for commodities. If the Russia-Ukraine war persists, there could be downside risks to most commodity prices (except oil). High energy prices, low gas availability, high inflation, and weaker demand could put downward pressure on commodity prices well into 2023. If business activities in China recover following the easing of the zero-Covid policy, some of the pressure could be lifted by Q4 2023.
Proprietary Trading Offers the Best Tools to Navigate Volatile Markets
Proprietary trading, where the broker funds experienced high-frequency retail traders use their best strategies in the financial markets, proves to be a win-win for both parties. Since prop trading providers earn from the profits of their traders, they are committed to providing the best possible trading conditions supported by powerful resources, including direct market access. The trading software is usually much more sophisticated than what is usually available for retail traders, while market information is also high quality. Plus, educational materials and mentorship solutions, such as exclusive events with professional traders, are offered to help traders hone their skills further.
Given that 2023 is likely a volatile year for most asset classes, high-frequency traders will benefit from prop trading resources to help them identify trading ideas and execute algorithmic trades. Prop trading has been gaining popularity worldwide, with close to 20,000 proprietary trading firms in the United States alone. Europe is also adopting prop trading with open arms.
Proprietary trading brokers are raising their investment budgets for 2023, expecting another great year, according to the Acuiti Proprietary Trading Management Insight Report. Of the 100+ senior prop trading executives surveyed for the report, 73% expect 2023 to be an “above average year” for trading. With this in mind, 68% said they intended to focus on tech in 2023 with above-average investment budgets, while another 25% said their budget for tech investments was "significantly above average."
Prop trading providers are looking to attract and retain traders through the latest technology, which can help improve latency and ensure speed, especially during times of high market volatility and low liquidity. Connecting to new markets is another focus area for these businesses. Close to 80% of prop trading firms plan to increase their trading headcount in 2023.
Another advantage for traders is that regulatory oversight is becoming increasingly stringent for proprietary trading-both the MiFID II in Europe and the Volcker Rule in the US. For instance, those offering prop trading via direct electronic access in the EU require a license under MiFID II. There are additional guidelines for algorithmic trading, such as the need for trading venues to conduct tests of algorithms and put specific control and systems in place. It includes systems that limit the unexecuted order-to-transactions ratio.
The result is that trader interest is protected, and traders receive cutting-edge support to make informed trading decisions. Plus, traders keep a large chunk of their profits they make instead of commissions and other fees, while the broker provides all the funding required to trade.
The Trading Pit Advantage
The Trading Pit is a prop trading firm with the promise to provide the ultimate global trading environment for traders to enhance their skills and eventually become professional fund managers. By providing a trading solution for all types of traders, TTP offers a community where traders can progress with no conflicts of interest-an environment where mutual benefit aligns.
Headed by a team with over 100 years of collective experience, The Trading Pit offers best-in-industry trading conditions, infrastructure and support. We recognize that our success depends on the success of our traders. Therefore, we constantly innovate to bring the latest technological advancements to ease trading and fuel long-term success.
Our cutting-edge trading platforms ensure the lowest latency order execution, powerful analytical tools, rich data streams, and multi-asset trading.
We equip our traders with superior technology and the knowledge necessary to become successful partners of The Trading Pit – potentially earning up to 70% of the profits.
Our mission is to be the new global standard in trading and investing.
Talk to us today to learn more about our offerings.
