World Economy – The Beaming Lights Emerging Among the Crisis

June 30 03:12 2020
Amid a crisis, there are bound to be winners who will shine among its peers. Some of the financial institutions have proven to be doing pretty well out of the latest one.

Signs show that the world economy has gradually came to a near cessation in the battle against the coronavirus pandemic, with millions unemployed and companies relying on cash salvations, one industry has proven to thrive among all the difficulties: securities trading. From Barclays to Citigroup, Wall Street firms had their best quarter in years of buying and selling stocks and bonds. Even so, in the field of financial derivatives trading, Contract for Difference (CFD) trading has proven to be a tremendous effective tool in the current market situation. Companies which provides CFD trading, like SAXO Bank, IG market and Cropean Trade Ltd, have blossomed since the beginning of this year.

From the history of financial market correction, to the unprecedented government and monetary stimulus packages and the spike in trading volatility, an “unique combination of events” drove client activity to unprecedented levels, according to JPMorgan’s chief financial officer, Jennifer Piepszak.

Among the banks, JPMorgan posted $7.2 billion in revenue from trading shares and bonds in the first three months of 2020, up by almost one-third from the first quarter of 2019. That was its best performance in this business, according to Bloomberg data. Citi posted a 39% jump in revenue, Goldman Sachs Group Inc. a 28% increase and Bank of America Corp. a 22% rise, largely exceeding analyst expectations. The banks were aided by a strong start to the year before the Covid-19 outbreak hit, the U.S. stock market had reached record highs as had debt underwriting.

Whilst in the derivatives market, SAXO Banks reported 38% jump in revenue from trading CFD on currency, commodities, shares and bonds in the first quarter of 2020. IG market posted a 32% jump in revenue, CMC markets a 26% increase and Cropean Trade Ltd a 21% rise, all performance by the respective companies had proven to have exceeded the expectations of a downturn market. Especially for Cropean Trade Ltd, at their peak last month, daily CFD trading volumes in rates and commodities were more than three times greater than the average daily volumes in January. CFD on currency trading had also reached levels that were more than twice the January average.

The extraordinary operational and financial challenges faced by these investment banks and financial institutions meant this performance which softened the blow from the billions of dollars of provisions that they made for possible credit losses was by no means guaranteed. As we entered the lockdowns, it was unclear whether securities firms could manage the dispersal of teams of traders who thrive on proximity and depend on ultra-fast electronic connections.

The extreme price and liquidity swings during March’s markets meltdown could have caught them out at the best of times. While JPMorgan and Bank of America have been putting pressure on traders to go into the office, most staffs have been working remotely, many from home. Regulators had to allow for greater flexibility around compliance. And what worked for the Wall Street giants doesn’t necessarily work for everybody. While traders usually love volatility, the breakdown of historic trading patterns has caught some finance firms off guard. As wild price movements rocked the markets, many hedge funds and high-frequency traders had made adjustment to their trading portfolio, for example, allowing JPMorgan and Citi to step in, Bloomberg News reported last month.

Although the widespread cancelling of corporate dividends also ate into some of the company’s equity revenue, the performance of Europe’s investment banks in the quarter remains uncertain for many though. At the same time, the extraordinary market gyrations and central bank and government interventions are unlikely to be repeated. The near-term market outlook is uncertain.

Goldman executives said trading activity has remained higher than average in the first two weeks of April, but Citi expects a “normalization” of trading in the second quarter. “Low rates and low economic activity may even be a headwind,” JPMorgan’s Piepszak said. Morgan Stanley CFO Jon Pruzan said that trading volume has fallen by between 20% and 30% since March. The bank warned that without the trading boost it got in the first quarter, the crisis will hit earnings.

On the other hands, the derivative markets see a different light in that perspective.  SAXO Bank CFRO Steen Blaafalk said that CFD trading volume will be on expectation of a rise in the coming months. Cropean Trade Ltd CEO Geordie Keelan said that CFD trading has been highly a sought-after alternative in the market, ever since the start of the crisis.

Despite among all the uncertainties that are ongoing in midst of crisis, we see beaming lights emerging from the field of financial derivatives trading, as such companies had proven to thrive among their peers, proving CFD (Contract for Difference) trading to be a tremendous effective tool in the current market situation.

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