Higher Levels of Volatility to Remain Post Covid-19 - Saxo Bank
- UK CEO Andrew Edwards shares his view on the pandemic’s impact on the economy and the financial markets
Economic turmoil associated with the Covid-19 pandemic has impacted the financial markets heavily over the past few months.
The biggest change Saxo Bank’s CEO Andrew Edwards has seen since the outbreak of the coronavirus is the increase in Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, 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. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, 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. Traders Read this Term.
He expects volatility to remain for some time as a long term effect of the pandemic.
“Saxo Bank benefited from being a very digital automated operating model. We have focussed on organic expansion during these volatile times through onboarding record numbers of new customers, acquiring record number of new client assets and servicing a record number of active customers ,” Edwards told Finance Magnates in an interview.
Due to high volatility, trading volumes went up and client assets have grown over the period through deposits and trading profits, according to the bank.
The firm has seen an increase in volumes in all products – FX, index and commodity CFDs, stocks and bonds.
When brokerages were forced to increase their margin requirements during the recent period of volatility, Saxo rerated a number of instruments, indices and single stocks being the assets with the highest increases, as soon as the volatility index started to rise. For example, the firm increased major indices for 5% to 7% and oil was increased 4 fold.
“Saxo doesn’t compete on Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term and we do our best to protect our clients through sensible margin rates and tools to help them trade in a safer way”, Edwards noted.
In his view, the Covid-19 crisis has caused a significant increase in customer interest in the markets, new customer accounts, active customers, trade volumes and client service queries.
No crisis for Saxo
Asked if Saxo's system was ready to reflect NYMEX oil futures and the underlying CFDs going into negative territory for the first time, Edwards stated that the bank anticipated the increased volatility driven by supply and storage capacity issues.
“We produced a research note the week before and encouraged all clients to roll their near contracts before the Tuesday expire. For clients who trade CFDs on oil futures we expire those contracts on the Friday before the Tuesday expiry to reduce the volatility risk. More sophisticated customers are allowed to run positions to expiry but we did warn them of the expected volatility”, he added.
The bank had a few clients with losses and no material exposure to write off from the oil meltdown.
Overall, the firm does not consider the pandemic as a crisis for Saxo.
“We have built a very automated, scalable and robust operating model designed to be resilient but more importantly protect customers during these volatile times “, Edwards said.
Saxo expects that smaller firms will continue to struggle past Covid-19 navigating changing regulation and the potential slowdown of economies impacted by the pandemic.
“We continue to focus on improving our client experience, providing clients with tools and insights to assist their trading and continue to build a world class partnership solution,” Edwards concluded.
Economic turmoil associated with the Covid-19 pandemic has impacted the financial markets heavily over the past few months.
The biggest change Saxo Bank’s CEO Andrew Edwards has seen since the outbreak of the coronavirus is the increase in Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, 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. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, 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. Traders Read this Term.
He expects volatility to remain for some time as a long term effect of the pandemic.
“Saxo Bank benefited from being a very digital automated operating model. We have focussed on organic expansion during these volatile times through onboarding record numbers of new customers, acquiring record number of new client assets and servicing a record number of active customers ,” Edwards told Finance Magnates in an interview.
Due to high volatility, trading volumes went up and client assets have grown over the period through deposits and trading profits, according to the bank.
The firm has seen an increase in volumes in all products – FX, index and commodity CFDs, stocks and bonds.
When brokerages were forced to increase their margin requirements during the recent period of volatility, Saxo rerated a number of instruments, indices and single stocks being the assets with the highest increases, as soon as the volatility index started to rise. For example, the firm increased major indices for 5% to 7% and oil was increased 4 fold.
“Saxo doesn’t compete on Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term and we do our best to protect our clients through sensible margin rates and tools to help them trade in a safer way”, Edwards noted.
In his view, the Covid-19 crisis has caused a significant increase in customer interest in the markets, new customer accounts, active customers, trade volumes and client service queries.
No crisis for Saxo
Asked if Saxo's system was ready to reflect NYMEX oil futures and the underlying CFDs going into negative territory for the first time, Edwards stated that the bank anticipated the increased volatility driven by supply and storage capacity issues.
“We produced a research note the week before and encouraged all clients to roll their near contracts before the Tuesday expire. For clients who trade CFDs on oil futures we expire those contracts on the Friday before the Tuesday expiry to reduce the volatility risk. More sophisticated customers are allowed to run positions to expiry but we did warn them of the expected volatility”, he added.
The bank had a few clients with losses and no material exposure to write off from the oil meltdown.
Overall, the firm does not consider the pandemic as a crisis for Saxo.
“We have built a very automated, scalable and robust operating model designed to be resilient but more importantly protect customers during these volatile times “, Edwards said.
Saxo expects that smaller firms will continue to struggle past Covid-19 navigating changing regulation and the potential slowdown of economies impacted by the pandemic.
“We continue to focus on improving our client experience, providing clients with tools and insights to assist their trading and continue to build a world class partnership solution,” Edwards concluded.