Prime Brokerage FX Trading Desks See Higher Volumes as Volatility Continues

Volatile markets since the start of the year are now expected to return banks’ trading desks to “normal”.

Major banks’ FX trading desks are returning to the “good old times” as volatility is returning to the foreign exchange market since the beginning of the year, sources shared with Finance Magnates. As traders are becoming more interested in committing to active trading due to widened ranges, prime brokers are marking the end of a long period of subdued volatility.

The currency market has been on a tear since the start of the year as the US dollar continued its decline versus major counterparts. The trading desks at major banks have been registering a sharp rise in volumes.

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Sharp Increase in Demand

Since roughly the beginning of February, the rise in volatility has spilled over into all asset classes with stock trading desks also registering record demand.

The second month of the year led to frantic activity in dealing rooms calling for overtime duty. Rising US deficit and debt levels are prompting a rethink on the US dollar’s value, while US wage data is showing signs of picking up.

VIX Carnage Acted as Stimulus

Last week, US stock exchanges registered the biggest trading volumes since the hight of the Great Financial Crisis of 2008. An implosion in the VIX index that is measuring share prices volatility prompted the liquidation of the XIV ETN by Credit Suisse.

US indices are registering unprecedented moves with the US Dow Jones Industrial Average registering its largest point drop in history last week. In the meantime, US stockbrokers are reporting the highest levels of retail trader interest in years, a measure which typically is associated with market tops and sometimes excessive spikes in volumes.

Fixed Income Rebounding Too

Bonds trading desks are also registering a sharp increase in activity as volatility is spreading across multiple asset classes. Fixed income trading is not only increasing in US treasuries but also corporate paper.

The correction in equities has prompted money that has been on the sidelines to start looking for opportunities and the market could have well presented one (or not).

Rebound in Major Banks Trading Revenues

Yesterday, the Financial Times published a piece citing Goerge Kuznetsov from London-based consultancy Coalition, stating that should current market conditions persist, quarterly trading revenues for the biggest dozen investment banks could be lifted by about 10 to 15 percent.

Big banks have been registering massive declines in trading activity throughout last year with the relentless top-heavy market spooking investors. The one-sided move in US equities has forced funds to diversify their exposure, a tactical shift that led to the dreaded short vol trade that imploded last Monday.

Trading desks at major banks remain cautions nevertheless as good volatility can quickly turn its ugly head and turn into a market rout that could spook investors away.

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