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COVID-driven volatility

16 Jan 2021, 01:50

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Simon Campbell, group head of trading at CMC Markets, spoke to FX Markets Magazine in June 2020 to discuss how markets fared in the wake of a significant increase in volatility.

With the majority of traders working from home and markets struggling to understand just how badly the COVID-19 pandemic would hit economies across the globe, trading activity accelerated to unprecedented levels. However with significant structural changes having taken place in the market since the last time such a sustained uptick in volumes had been seen, how would markets fare during this time?

The article covers how recent changes in access to tier one liquidity manifested themselves and looks at the impact new entrants had on maintaining market stability during this chaotic spell. Whilst the prevalence of algo-driven trading may have helped mitigate at least some of the volatility, these global events were still a real shock to the market.

The liquidity squeeze, combined with businesses rapidly transitioning to a work-from-home environment had the potential to create a perfect storm, but thankfully that wasn’t the case. A fortuitous series of evolutions over the last decade or so, ranging from improved technologies and communications to wider distribution of liquidity providers, certainly helped ensure markets continued to function even when the threat of dislocation loomed. Whether this is sufficient however to suggest that the market is better placed to deal with the next Black Swan event remains a subject for debate.

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