The COVID-19 pandemic has opened the door to extreme volatility across nearly all asset classes especially in the first and second quarters of 2020.
Whilst many instruments have seen meteoric price gains in the last year, day traders are seeking volatility, not value. With that in mind, we spoke to CMC Markets Connect, Ahmed Soliman, to discuss which assets can still provide the sought-after volatility today – and where traders may want to look tomorrow.
Which assets have remained volatile over the last 12 months?
Ahmed Soliman: During this period, only cryptocurrencies have kept extraordinary figures. In March 2020, volatility numbers on crypto were in the three digits and remained so in April 2021, the latest month on record.
Equity indices and FX instruments pale in comparison, with indices dropping from just below the 100% mark to between 9% and 14%. The most volatile FX instrument in March 2020 is the same as in April 2021: Silver, mostly due to being picked up by the WallStreetBets subreddit. Volatility on major FX pairs is currently measured in single digits.
Do you see a potential equity market correction changing this?
Ahmed Soliman: There’s certainly plenty of talk surrounding the risk of an equity market correction being seen and obviously that has the potential to fuel volatility. Whether that’s simply a result of equities and their accompanying indices making even more exaggerated movements or something more nuanced in the form of a flight for safety, it should create some volatility in the short term. So whilst сrypto volatility, especially amongst the altcoins, seems unlikely to disappear, we also give clients a seamless route to long & short exposure on anything from Apple to Xerox. A change in tempo may well be coming and we stand ready to address that market need.
What about a move to higher interest rates, especially in the US?
Ahmed Soliman: Higher US interest rates have the potential to really shake up market volatility across the board. Major FX pairs could show some signs of life, but it’s the exotics – where many nations are saddled with dollar-denominated debt – that could really stand out when it comes to currencies. Higher interest rates also typically mean higher inflation, so will this see the safe haven of gold move into favour? And back to the subject of cryptos, with the unique inflation-hedging properties of Bitcoin, confidence in these digital assets could be tested again, with the potential for another surge in interest.
How is CMC Connect accommodating this and what are your Institutional clients doing to position themselves properly?
Ahmed Soliman: We have seen lots of interest in new asset classes, namely cryptocurrencies, and we have addressed them by offering exposure to Bitcoin, Ethereum, Litecoin, Bitcoin Cash, TRON, Stellar, among other leading cryptocurrencies which have taken the market by storm and presented unique trading opportunities.
We also offer crypto index trading, making a distinction between major cryptos and emerging cryptos, as it can be a more cost-effective way of trading and helps spread some of the risks.
Overall, our institutional clients are catered with more than 10,000 instruments with an API feed enabling brokers to pick and choose and trading via MetaTrader 5, which has proven to be a lot more flexible than MT4.
Ahmed will be attending the IFX EXPO event in Dubai taking place on 19-20th May 2021. If you are also attending and would like to learn more about CMC Connect liquidity provision and trading technology, please contact him at [email protected] to arrange a meeting.