Futures on cannabis, crude oil, and possibly crypto: 2 former Thinkorswim executives behind a new exchange aimed at individual investors explain why retailers skin in the complex …
An emerging exchange is working to bring futures markets to the masses.
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- The Small Exchange offers bite-sized futures contracts on crude oil, government bonds, and now cannabis too.
- CEO Donnie Roberts said insider futures could represent an untapped opportunity for retail investors.
- It’s not a broker’s responsibility to “play god,” said Tom Sosnoff, co-founder of Small Exchange.
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A Chicago stock exchange would like to open up the complex and risky world of the futures markets to private investors.
Over the past year, swarms of retail investors have ventured into the financial markets, trading everything from meme stocks to dogecoin. Whether options or fractions of shares, investors used an extensive tool belt of financial instruments.
The Small Exchange believes that futures must be part of that equation as well.
“When I look at the futures area, it is underutilized by private investors because they are afraid of futures. And they have a right to it, ”Tom Sosnoff, Co-Founder of Small Exchange and Co-CEO of Tastytrade, told Insider. “So we’re trying to change all of that.”
Founded in 2020, and backed by Jump Capital, Citadel Securities, and Tastytrade, the Small Exchange has worked to get individual investors into the futures markets. His pitch revolves around the “bite-sized” contracts on the stock market that follow crude oil, stocks, and more. The exchange even recently announced the first U.S. cannabis futures contract called the S420, and executives told insiders that they see digital assets as the next frontier.
Futures, which allow buyers and sellers to enter into a trade at a specific price and date, have long been left to financial, energy, and commodity giants to use for trades like hedging their exposure to US stocks or betting on the prices of pork products complete. Individual investors have been effectively “left out in the rain,” with futures often either too big, unavailable to trade, or incomprehensible to retail, said Donnie Roberts, president and CEO of the Small Exchange.
Sosnoff and Roberts have extensive experience in introducing retail investors to the world of derivatives. Two decades ago, former Chicago open-outcry traders, Thinkorswim, helped sprout the options trading platform that was eventually acquired by Ameritrade.
“Options used to be a bit of a tobacco market too,” Roberts said in an interview. “But through education, knowledge and standardization, the world of equity options and the world of index options has grown exponentially with retail customers. We want to do that here on the future side as well. “
So far, the plan seems to be working.
The Small Exchange recently reported a 42% increase in monthly average trading volume year over year. Open interest rose by 250% and unique users by more than 50%, according to the exchange.
It is not alone for small investors either. The CME Group has launched a range of micro-futures products on stocks and even Bitcoin that are also tailored for active retail investors.
The wave of individual investors who participated in the markets last year could represent an opportunity for the Kleine Börse as many have already shown their willingness to trade in derivative products such as options.
However, following the suicide of 20-year-old Alex Kearns last year, Washington DC lawmakers have begun paying new attention to the question of whether individuals as a whole should be trading complex financial products such as options – an issue that is likely to find its way Futures markets as more retail investors pile up.
For Sosnoff, the success of the Small Exchange depends on reaching “critical mass”. This includes not only educating investors about the futures markets, but also brokers who have so far not allowed their customers to trade in such products. That was the equivalent of “walking into a casino that only offers slot machines,” Sosnoff said.
“We’re product indifferent,” Sosnoff said of Tastyworks, the retail broker owned by Tastytrade. “We believe that it is the duty of a brokerage company to enable opportunities and not to play God.”