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Right now it feels like the world is going crazy.
But the benefit for brokers is that, because things are so bad, life has never been so good.
Or at least that’s the impression I get.
In the first week of November, TradeInformer reported that Pepperstone had what was probably its best day of business ever, with a purported $27bn in volume and over 1m trades executed.
Similar stories have come to me through the grapevine. One broker who had already enjoyed their best day of business earlier in the year, gave a ‘no comment’ when asked if the same was true of the last couple of weeks.
Speaking to XTB’s Head of Dealing Filip Kaczmarzyk last week, he noted that the broker had a record number of clients online at one point earlier this month.
Over in the US, CME Group and Cboe have been posting their highest options volumes ever.
Finally, and perhaps most tellingly, I posted this gif of Chris Tucker at the end of the first Rush Hour film on LinkedIn.
Many of you liked this gif with a smiley face emoji, which I take as a very positive sign.
In fact, I am happy to say (or ‘delighted to announce’ to use LinkedIn parlance) that I may be the first person to have turned a meme from Rush Hour 1 into a genuine piece of fundamental analysis for active fund managers.
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“The past week and a half has been exceptionally busy, with volatility surging to levels we rarely encounter more than a few times a year,” Paresh Patel, ATFX’s Global Head of Trading & Risk Management, told me.
“Market movements have been extreme, driven in part by ongoing tariff negotiations, which continue to keep uncertainty at elevated levels. As new developments emerge daily, the heightened volatility shows no signs of easing just yet.”
The overall sense you get?
Business has been good.
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Dealing difficulties
One thing I always wonder is whether in such crazy market conditions, it becomes harder to manage your trading operations.
I like to envisage dealing desks shouting at the premium client teams, who are themselves being yelled at by their end clients. That doesn’t seem to happen (sadly). In fact, it’s almost the complete opposite.
In a sign of how automated everything has become – and probably already has been for years – everyone I spoke to basically noted that systems held up and, although more orders might have been coming in, it didn’t really result in anything having to be changed.
“Despite the spike in volatility, we benefited from the increase in risk aversion by clients who naturally reduced position sizes or exited positions altogether, resulting in a broad-based decline in net exposure,” said Sakis Paratsoukidis, Head of Trading at CMC Markets APAC.
“That being said, managing client expectations with relation to spreads and liquidity during times of market turmoil can be challenging.”
Sakis’s final point is also interesting as I wonder if there has been any change to client behaviour in the last few years.
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Last week we looked at how the number of people in the US with investment accounts has more than doubled over the last 10 years.
What I wonder this time around is, rather than seeing a surge in new accounts, you instead have a surge in people trading on existing accounts.
And given those people have some experience, would they still be so mad about market dynamics affecting trading activity? That is probably putting hope over experience.
Good times or bad times?
A point that Andrew Lane from Acuity Trading made is whether everything that is happening could be a short-term positive but long-term loss for brokers. The basic idea here is that people will have less money due to the economic downturn that current events may (will?) cause.
I am not sure about that. If you look at the UK, for example, wage growth has been depressingly stagnant since the financial crisis in the late 2000s. And yet the market for trading has never been bigger.
Another way of looking at this is also that people tend to look for alternative income sources when the economy gets worse. So even if incomes are down, trading may actually become more appealing.
To me the bigger risk is that the entire system we’re in breaks.
To use an analogy, if you are a mechanic, you make a small amount of money from a car that needs a yearly check up. You will make a lot more money if, from time to time, it needs bigger repair jobs, like a new starter engine or throttle body.
But if the car is totalled, you are done and now can’t make any more money from it. You need to wait for the owner to buy a new car and the process can start again.
In the same way, brokers make bits of money here and there and then a lot of money on a small number of occasions when there is huge volatility. But if the whole system underlying that process doesn’t work, you can’t do that.
Right now it feels like the US is trying to upend the entire financial system / world order that has existed for ~80 years.
TradeInformer has the (mis)fortune of knowing two civil servants in the UK working on foreign affairs. As one of them recently noted over beers in a glamorous Limehouse pub, the UK at the moment is trying as hard as possible to ‘salvage’ something like ‘the west’ or ‘the US world order’.
Let’s assume that doesn’t happen. What next? I don’t know. But it feels like bad things are on the horizon.
This industry works, in large part because it is relatively easy for people and money to move between countries. The other facet of this is market volatility occurs within the confines of a system that continues to function, even if the chart on the screen moves up and down a lot.
Who knows what will happen but if one or both of those things goes away then probably we’ll have more to worry about than whether or not you can fly to Malaysia to meet your IB.