By Steven M. Sears

CME Group is starting a new, profitable chapter that isn't yet reflected in its stock price.

The exchange company -- which specializes in futures trading -- is starting to attract retail investors, something long thought to be nearly impossible in the futures market.

During the second quarter, CME reported that more than 90,000 retail traders, a 56% year-over-year increase, traded futures for the first time. It was the fifth consecutive quarter of double-digit growth.

This development suggests CME is creating a new class of customers, an incredible feat for any business but especially for an established exchange. Major bourses tend to rely on market volatility and well-established customers for growth.

The futures market has watched for decades as a related derivatives market, equity and index options, experienced exponential growth and widespread acceptance -- especially among individual investors. Making matters worse, Chicago futures traders created the options industry, only to lose control over their creation.

Though futures are somewhat similar to equity and index options, brokerage firms have never meaningfully marketed futures to individual investors -- and unlike stocks and options, futures aren't regulated by the Securities and Exchange Commission but by the Commodity Futures Trading Commission. But that old bias is changing. Robinhood Markets, the pioneering online brokerage firm, for one, began offering futures trading late last year.

By partnering with retail brokers and focusing on investor education, CME seems to have finally figured out how to access the retail market. If the progress continues, CME's earnings should increase as exchanges profit from trading volumes.

In many ways, CME's playbook seems similar to how the options industry has long enticed individual investors: Link up with brokerage firms and create educational content to teach people how to use the products. At various times, retail investors have reportedly accounted for as much as 70% of the options market's total volume. It is reasonable to think that individual investors currently account for a small part of the futures market.

Anyone willing to wager that retail participation is on the cusp of growing -- which would mark the start of an important new chapter for CME -- can, ironically, get the options market to pay them to make the bet.

With CME stock at $274.60, investors can sell the September $270 put option for about $5.80 and the September $260 put for about $3. The sales position investors to buy the stock at lower prices. During the past 52 weeks, CME has ranged from $193.25 to $290.79.

If the stock is above the put strikes at expiration, the put premium is kept. Should that occur, reset the trade. Anyone who's worried that CME stock is unlikely to weaken can buy shares to complement the options strategy.

CME lacks the pizazz of a hot stock, but the global economy and financial market couldn't function without CME's futures on the S&P 500 index, interest rates, and vital commodities, including oil. CME also is active in cryptocurrencies.

CME's markets are practically impossible for competitors to replicate. The only feat harder for an established exchange than creating a new customer base is for a new exchange to persuade existing customers to move their business.

All of this makes CME highly profitable. It has even been called a cash machine. The company generates so much money that it pays a special annual dividend to return its excess cash on top of CME's 3.8% dividend yield.

While many investors own CME for those reasons, the retail investor angle is now the more compelling theme. If CME succeeds, the stock price, and the futures market, will never be the same.

Email: editors@barrons.com

To subscribe to Barron's, visit http://www.barrons.com/subscribe

(END) Dow Jones Newswires

August 01, 2025 21:31 ET (01:31 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.