Should Brokers be Bracing for March Levels of Volatility?

As cases of COVID-19 continue to increase across the world, many people are fearing a so-called second wave of the coronavirus pandemic which could lead to more strict lockdown measures.

As Finance Magnates has well documented, the coronavirus pandemic saw a significant uptick in Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term in the trading markets. This then led to an increase in trading volumes, which saw many trading providers record historical trading volumes.

However, since the highs seen in the final week of February and into March of 2020, volatility has been tapering off. That was, until June, which has provided an uncharacteristic surge in volumes for brokers across the world.

As Finance Magnates reported, a number of trading providers, such as retail broker Gaitame, Saxo Bank and GMO Click were among the many brokers to see solid trading volumes in June, beating the summer lull which usually befalls FX volumes in June and July.

The resurgence of higher trading volumes also coincides with the total number of people to test positive for COVID-19 surpassing 10 million, according to Johns Hopkins University. This has been largely led by an uptick in cases across the United States, Brazil, and Russia.

Are brokers prepared for more volatility?

Whilst it's debatable whether we will see the second wave of COVID-19, as many would argue that the first wave never ended, we could see another peak of volatility within the foreign exchange (Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term) markets. So what are brokers doing to prepare for further heightened volatility?

Speaking to Finance Magnates, Pavel Spirin, the Chief Commercial Officer at Skilling said: "We have built a robust infrastructure to eliminate or minimise extreme market conditions’ impact on our clients’ trading. We have practical tools in place, like reduced leverage or temporarily suspending select markets, that we can utilise to minimise risk. However, our main tool is proactive communication with our clients and a warning system that would prewarn and prepare our clients for any adverse market conditions."

According to Denis Golomedov, Chief Marketing Officer at RoboForex, broker’s must be ready for any stock fluctuations and volatility in the capital markets.

“It is unlikely that we will soon see volatility levels similar to those that we faced in March. Investors have been living with the understanding that the virus is not conquered and the second wave is possible, for several months, while economies are drained regardless of various support measures of monetary authorities,” he told Finance Magnates.

“At the same time, it is perfectly obvious that markets are ready to buy, and they will make their desire come true as soon as they see some decent perspective.”

If volatility does return, where will traders go?

If we do see another wave of heightened volatility, similar to that seen back in March, where will traders go? According to Golomedov, safe havens assets is where traders will flock to.

“In the case volatility increases, the first thing that investors will pay attention to will be the so-called protective assets. They include precious metals: gold, for example, offers the widest perspectives, same as silver or platinoids,” he highlighted.

“Also, such periods awakens interest to safe-haven currencies - the US dollar, Japanese yen, Swiss franc. The crypto sector may also answer the bell; there is definitely potential not revealed there.”

"We are constantly monitoring the market and the geopolitical developments around the world and adjust our systems accordingly," added Spirin. "There are a few developments on the global geopolitical front at the moment that we’re following very closely and are prepared to act on any outcome."