Extreme Volatility Across Global Markets

There are numerous risks impacts that we are observing in global market conditions, including but not limited to extremely high volatility across the markets leading to sharp moves in metals, indices and even currencies. With this email we would like to make you aware of some of the major events and the significant impacts these events have on trading as we are seeing in the market.

What’s happening in the market?

• • Spreads in the spot market have widened dramatically
• • XAU liquidity in the futures market remains thin. One of the key drivers of the dislocation seems to be arising from the exchange for physical ‘basis’ – aka the cost to swap Futures into OTC (spot) XAU – is essentially closed. Many eFX LPs simply quote retail venues a spot price in XAU and then hedge into the Futures market. Essentially, LPs are taking a risk on the implied ‘basis’, skewing prices to try to attract flow that will reduce their risk.
• • XAU pricing may be intermittent and spikes in the spreads will continue over a couple of days.
• • The USD funding squeeze has put significant pressure on LPs who are all generally short ‘basis’.  
• • Refineries in Switzerland have also shut down and physical delivery of Comex Gold has been made nearly impossible because of flight restrictions due to COVID 19 travel bans, making it harder to physically deliver bullion to cover shorts.
• • Wider spreads and extreme volatility in currency markets, with the USD falling after the U.S. Federal Reserve announced an unprecedented scheme of credit support to help the United States economy whilst full lockdown is being implemented in several states across the nation.
• • Other Reserve Banks around the world are moving to push massive amounts of liquidity into the market and volatility is spiking on the back of these news announcements.

What does this mean to you?

It is important to understand that these conditions are caused by the extraordinary events we are seeing around the world and uncertainty in global markets is impacting trading conditions at all brokers and financial institutions.

• • All indications from the interbank LP market (as well as a number of non-bank and ECN venues), are that the issue currently being experienced in the Spot / Futures XAU market may not be resolved for up to 24hrs.  

• • We are not expecting pricing / liquidity to resume to more normal levels for a number of days but will do everything to work with our LPs to ensure the best possible pricing and execution for our clients.
• • We also expect to see this difficulty stretch to other precious metal markets and potentially, other commodities.
• • The market could go extremely volatile further as it responds to news releases and updates.

What should clients do?

It is extremely important for the clients to be fully aware of the underlying market conditions and plan their trading accordingly. As uncertainty grips the market, Liquidity Providers and Banks retreat.  As a result of this, your stop orders may incur greater slippage and stop out levels may be significantly above or below where you expect to be executed.

We have adjusted our spread filters and maximum spread settings to ensure that pricing is available for all of our markets and all of customers. While we are taking every measure to help protect our customers from such unprecedented volatile spikes in the spreads, it is expected that the clients remain vigilant to the increased risks of slippages and stop outs, and take necessary action on their trades ensuring they have full margin covered to support their trades.

We recommend that you monitor positions carefully and maintain a sufficient account surplus throughout this period.

Vantage will continue to communicate with you about the impacts the Corona Virus is having on global markets and how this can affect your trading. If you have any queries, feel free to contact [email protected]