UK Markets on High Alert: Expert Warns of Imminent Volatility Storm in FX and Stocks

2020 will see those appointed to government positions to represent our people shift that responsibility with great speed and concerted global action, ensuring that governments are democratic representatives of the people’s demands. Rather, it will surely go down in the annals of history for generations as the year that made the people their servants.

As a result, freedom and democracy are now a distant memory in many Western countries, especially those with significant influence on financial markets such as the UK, US and Australia, and in some countries in the Asia-Pacific region such as Singapore and Hong Kong. lives are being destroyed by government lockdowns.

This has done untold damage to the social and economic structures built over hundreds of years and placed unprecedented power in the hands of national leaders, but the only good thing about this tyranny is that Markets have become volatile and, as a result, electronic trading is alive and well.

Low volatility has been a problem for years, to the point that almost 21 years ago, FXCM founder Drew Niv said there had been 30 years of near-zero volatility. So, if we can take this at face value, barring a couple of completely chaotic events, such as the Swiss National Bank depegging the EUR/CHF pair two years ago, it has been around for almost two years. This means that the market has been very stable with little volatility.

At the time, the entire industry was completely unprepared for any form of volatility, and negative balances piled up, causing heavy losses for brokers and Tier 1 banks, and in some cases, bankruptcies for brokers. B-Book wins again.

However, in most “developed” countries, which constitute the most heavily traded reserve currency pairs and where the majority of trading takes place under well-organized infrastructure, political stability and democratic Due to its economic, free and business-oriented structure, the FX industry has become accustomed to stable markets and less volatile conditions, but these regions have become authoritarian, forcing people to sit on the couch and making business difficult. What will happen if we lose our lives, our livelihoods, our freedoms, and our economy collapses?

Volatility, that’s what it is.

The retail electronic trading sector is very accustomed to low volatility and believes it is necessary for business continuity (partly due to absolute risk aversion), so it has withdrawn counterparty credit from Tier 1 FX interbank dealers. (extremely difficult to obtain) and the profit margins are very low. The reason is that there are over 1200 nearly identical MetaTrader-based entities on the market, offering the same range of spot FX financial products. Many are just white labels from MetaQuotes, which is an affiliate marketing company rather than a platform company, and costs money to attract customers with low deposits, inexperience, and low lifetime value.

It’s no secret that the marketing departments of most retail FX brokers charge upwards of $1,200 to acquire a customer through the somewhat antiquated methods of lead buying and affiliate marketing, while the initial deposit is around $200. low, with a lifetime value of about three months.

Therefore, given the new wave of volatility, as long as the right framework of risk management and execution methodologies can be leveraged, brokers can build businesses around it and not newbies stuck in a zero-sum situation with B-books. , opportunities will likely arise if you consider attracting traders who are willing to try their hand at trading in volatile markets.

But there is always a pragmatic view, and despite the recent rally in the stock market due to marketing-related bombast and tabloid sensationalism surrounding several “vaccine” boasts by Big Pharma. This is a boon for news traders, as the current illiberal governments in Western Europe and America may push these untested drugs onto their hapless citizens, boosting the profits of these companies in the future. However, it is worth considering that further announcements by Dickensian politicians may not create even higher levels of volatility.

Giles Coghlan, chief currency analyst at Henyep Capital Markets (HYCM), is cautious about the upcoming spending review in the UK, the world’s largest capital market center and the most valuable major currency. It shows you how to look at it.

The spending review will be announced by Britain’s incompetent Chancellor of the Exchequer, Rishi Sunak, who hides a red ideology under a blue suit.

Mr Coghlan said: “Compromise, cuts and prudence are the challenges of today.The UK budget deficit is over 18% and public debt is over 100%. This only adds to the pressure and there are serious questions about how public debt is managed.This spending review is not the usual 4-2019 plan due to the uncertainties surrounding Brexit and COVID-19. , will be a spending plan for the 2020 plan.”

“Naturally, this Conservative government does not want to be responsible for further austerity measures, but it is unclear how public debt can be resolved without spending cuts and tax increases.However, there is a general atmosphere of fiscal conservatism. is very unpopular and goes against the current mood of spending to get us out of the current crisis,” Coghlan said. (A Conservative government in name only! – Editor).

“Investors and traders are well aware of the challenges facing Chancellor of the Exchequer Rishi Sunak. The Chancellor has already announced investments in defense and green energy, and the Chancellor has announced modest spending cuts and “I expect they will reach a compromise with minimal tax reform,” Coghlan continued.

“Importantly, financial markets will be most interested in Chancellor Sunak’s forecast for the UK economy, which is unlikely to be optimistic. Net public borrowing will be £32.2bn, 16% of GDP, the lowest in at least the past 300 years. “This is the highest level. Public borrowing could exceed £35bn in 2020-21,” he said.

“Despite this weak scenario, we do not expect any sharp moves in currency markets and the FTSE after the Finance Minister’s speech as much of this bad news has already been priced in.The more immediate concern is , the outcome of the Brexit negotiations, with the pound rising on hopes of a deal being reached, perhaps as early as this week,” Coghlan said.

“With spending cuts and tax reform on the horizon, investors will flee to assets that are safe, resilient and have the potential for long-term capital growth,” said Jamie Johnson, CEO of FJP Investments. This is part of the reason why the real estate market is so active.”

“More people are looking to take advantage of the stamp duty exemption to invest in property. As a result, house prices are rising at an alarming rate. This reflects an asset with high demand and limited supply. We expect this situation to continue in 2021.

“Importantly, infrastructure spending remains a mainstay of policy, with billions of dollars being spent on refurbishing and building new homes. We recognize the need to include measures to encourage investment in property and infrastructure, an important election promise that Prime Minister Boris Johnson wants to keep, as well as directing public funding to these developments. It also boosts economic growth and productivity,” concluded Jamie Johnson.