CME’s CEO explains how Main Street is taking more control over its portfolio from Wall Street, and how the futures exchange is adapting

Main Street investors are more interested than ever in managing their own investments, and CME Group CEO Terry Duffy is happy to oblige.

Duffy’s exchange group, which owns and operates some of the largest trading venues for futures, told Business Insider that there is a growing population that’s taking its money out of Wall Street’s hands. In 2018, CME saw a 27% uptick in trading activity from its retail customers compared to the previous year.

“I think they have become more and more sophisticated in leaving it less up to maybe somebody else. You know, ‘I want to be able to manage my portfolio,'” said Duffy in an exclusive interview at FIA’s International Futures Industry Conference in Florida. “Call it the pilot of their own plane. They want to have control of their own destiny.”

Read more: A former TD Ameritrade exec wants to make futures trading more accessible to Main Street, and a dozen brokers have signed up

Duffy’s exchanges play an important role in investors’ trading strategies. Futures offer a chance to hedge against investments made in the equity market.

And as individual investors have shown an increased interest in using risk management tools such as futures, firms have aimed to cater to them. In January, a former TD Ameritrade executive announced plans to offer a futures exchange specifically for retail investors with smaller-sized contracts.

Duffy’s own exchange group has plans of its own to meet the needs of those outside Wall Street. In March, the exchange group said it was launching micro versions of some of its most popular futures. The micro E-mini futures are 1/10 the size of the popular E-mini futures on stock indices S&P 500, Russell 2000, Nasdaq-100 and Dow Jones Industrial Average.

While the size of contracts has been one hurdle preventing individual investors involvement in the futures market, the complexity of the contracts is also a factor. Unlike investing in a stock, a person could end up owing more than their initial investment when dealing in futures.

To be clear, Duffy and CME aren’t pitching these new contracts to everyone. Average mom-and-pop investors should leave futures to those who already manage their money, Duffy said. The type of investor CME is targeting with the new contracts is a professional trader that trades between 10 to 30 contracts a day, he added.

“We want to have sophisticated people trade the market every single day. Not people who look at the newspaper and say, ‘Hey, I heard about this from my friend in the elevator, I want to take a swing at this crypto, or gold or something else,” Duffy said.

CME has also invested money in educating investors on the futures market, Duffy added. Whether it’s through training courses on its website or sending employees around the globe to speak at seminars or conferences, Duffy said the exchange has made sure customers have a deep understanding of its products.

That type of work means there’s a high cost to acquiring new customers. And considering an individual investor won’t have as many assets as a Wall Street firm, it begs the question: Why spend so many resources attracting clients that bring a fraction of the amount of money your typical clients trade?

Duffy said the marketplace is like a giant chain, and adding a new customer adds another link that creates more trading activity for the entire industry.

“There is a big trickle down effect to a transaction. So even though you may not get every single person or only a handful or people that you talk to participate, they could have an effect that creates more trades by making one trade, and that is really the factor that goes in multiples,” Duffy said.

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