Currency Market Volatility Prepares For Significant Volatility

Dan Marcus, CEO of ParFX, an institutional foreign exchange trading platform, comments on how uncertainty around the result of the UK referendum is leading to investor trepidation and increased market volatility:

The outcome of the EU Referendum vote on June 23 is the largest risk event for international currency markets so far this year. With the polls too close to call, no clear direction as to the outcome and currency market reacting in a volatile fashion to any indicators, increasing uncertainty is leading to a reduction in liquidity. All this has triggered a flight to safety and investor trepidation about how the outcome of the vote might affect trading positions and portfolios.

This period will also act as a test for brokers, trading platforms and infrastructure operators. Following last year’s surprise decision by the Swiss National Bank to remove its currency peg against the Euro, some market participants recognised they were unprepared for the unexpected move in EUR/CHF that followed. However, the lessons have been learned and technology and risk protocols have been upgraded and adapted. Market participants are now better prepared for an explosion of volatility and are likely to err on the side of caution in the face of significantly higher trading activity following the EU Referendum vote.

What continues to largely remain unaddressed from last year is the ability for traders to execute trades effectively during times of extreme volatility, and limiting instances of disruptive trading behaviour. This will be crucial if some participants seek to gain a latency advantage for nefarious purposes while others seek exit or adjust their positions, realise hedges or seek to identify profitable strategies.

This is where ParFX has a unique advantage. Our platform was developed in conjunction with some of the largest market participants, and the stability and firmness of prices that participants see on ParFX and the ability to execute on these prices is one of the platform’s primary principles. We have protocols and mechanisms in place to enable this to happen, such as randomised order entry, full trading transparency and the distribution of market data in parallel. This ensures participants in our trading environment operate on an equal playing field, while instances of latency-led disruptive behavior occurring is reduced significantly.

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