Why should brokers care about stock markets volatility

The last couple of days have triggered a number of controversial events in the financial industry, which at first glance are not important for retail FX/CFDs brokers. Products that have previously seemed safe to invest in, are shaken, multi-year profits of the short vol russian roulette crowd have been wiped out. ETNs, ETFs, VIX Futures.

Brokers didn’t express any concerns about managing the risk that traders are exposed to. Asset classes outside of stocks have yawned. Gold ignored the largest point drop in the history of the Dow Jones Industrial Average on Monday as the safe haven bids are nowhere to be seen.

Instead, everyone is talking about the VIX and the point drop. The trade that has been feeding short-term speculators (and some pension funds I hear) for years has been demolished. The volatility tracking Exchange-Traded Notes of Credit Suisse and Nomura left institutional and retail investors deep in the red. The short volatility trade has been working for the most part of 2017, netting a doubling in one-sided bets against the measure.

Historically, the value of global stock markets has been a very small concern for retail CFDs brokers. That, however, doesn’t mean that they are well protected against black swans in this market. Both market makers and STP brokers are holding risk, especially after the negative balance adjustment which has become something of a done deal in the latest ESMA projections on new regulations.

While the past few days have shown how illiquid global equity markets can get, the FX market is nowhere near worried. In contrast to the US stock market flash crashes in the past, the adverse effects of a rise in volatility did not cause a dramatic shift into the yen, nor massive buying of gold. Volatility aside, liquidity on the other markets remained well supported throughout the worst of the market selloff.

Source: Finance Magnates

Trader Bozhdiar Arabadzhiev

Original post: Analysis: Why Should Brokers Care about Stock Markets Volatility

Read more:

• And for all the bounty hunters: Iran offers $80m for the head of Donald Trump
• US service member and 2 US Defense Dept contractors killed in Kenya attack
• Iranian Quds leader Qasem Soleimani has been killed – how are markets reacting
• A calm end of an otherwise loud 2019
• Old but Gold – Top 5 posts of Varchev Finance