The COVID-19 pandemic has rocked the global financial markets, with the increasing threat of the virus causing large swings in currencies and weighing heavily on shares. Australia's financial market, in particular, has taken a battering.
This month has been particularly rough for the land down under, with the Australian Securities Exchange (ASX), the country's primary securities exchange, being hit hard.
On the 9th of March, the exchange had its worst day since the global financial crisis, when almost $140 billion was wiped off the stock market. The 16th of March delivered further bad news when the ASX 200 posted its biggest fall on record.
March has also not been a good month for the Australian dollar (AUD), having fallen to its lowest level in 17 years on the 16th of March, dropping below the US60.10¢ mark it hit during the worst of the global financial crisis. Specifically, the Aussie dollar hit US59.60¢, the weakest level since April 2003.
Despite the market turmoil, Aussie brokers are thriving
Amid all of this activity surrounding COVID-19, how have Australian brokers been fairing? It appears, despite what has been a bad month for the Australian financial markets, has managed to be a good month for brokers.
Finance Magnates reached out to a number of the country's top brokers to see how they have been navigating these uncertain times. Overwhelmingly, the response we received was that the increased volatility has been good for business.
Christopher Gore, CEO of GO Markets
Source: GO Markets
Speaking to Finance Magnates, Christopher Gore, the Chief Executive Officer (CEO) of GO Markets, said: "We're seeing a material increase in trading volume alongside market volatility. Markets are dealing with unprecedented and complex themes, which evokes all sorts of emotion.
"For some, volatility represents a time of opportunity, and for others it's a time to stay firmly on the sidelines. Automated trading also promotes higher volumes in volatile markets."
Jimmy Ye, Co-Founder of ACY Securities
Jimmy Ye, Co-founder & Co-director at ACY Securities, also told Finance Magnates that although coronavirus was creating numerous challenges for many industries, it has also brought with it opportunities.
"...ACY Securities saw record trading volumes and a record number of new trading accounts opened last month in February. March has already surpassed those volumes and number of new clients and we are looking to set new records again in March," he explained.
"New clients are joining ACY Securities from all over the world, not just from Australia. Which goes to show the true international nature of this event."
Pepperstone, a large forex broker in Australia, also told Finance Magnates that it is coping well in the current environment.
Brokers encounter Liquidity issues amid COVID-19
However, as Finance Magnates previously highlighted, large levels of volatility can create liquidity issues for brokers. This is already happening with gold (XAU), as demand is far outweighing supply.
Austen Plummer, the Marketing and Communications Manager of Vantage FX, highlighted this by saying: "Many traders and investors thrive off volatile conditions, so we have seen quite an increase in trading activity as well as onboarding interest over the past few weeks, which is great! However, the significant market volatility caused by COVID-19 has affected Liquidity Providers ' pricing of some instruments.
"Most recently, XAU instruments have been noticeably affected world-wide, as well as several limit-down and limit-up days which affect US Indices. These issues are taking place across the globe, affecting all brokers and liquidity providers, so we are placing a great deal of importance on regular communication with clients advising that caution must be strictly exercised during these extreme market conditions."
In an email sent out to its clients on Tuesday, FX and CFD broker Alpari addressed the liquidity issues surrounding gold by saying: "We would like to inform you that due to the growing impact of the coronavirus outbreak on global economic activity there has been an unforeseen shortage of physical Gold in the financial markets."
"Moreover, due to the aforementioned abnormal market conditions, we have noticed increased spreads across all XAU and XAG symbols coming from our liquidity providers. Hence, as part of our continuous efforts to always protect our client's trading interests, Alpari has switched all XAU and XAG symbol to "Close-Only" mode until further notice."
Brokers should remain cautious
Although this increased volatility has so far been largely good news for brokers, the CEO of GO Markets pointed out that these are uncertain times, and it's unclear how the COVID-19 situation will evolve.
"At this stage most of our business metrics are broadly stronger. Still, we're in uncharted waters – we may well see a lull in volumes as time wears on. There are so many variants to consider," Gore outlined.
When asked how the Australian forex broker's volumes compared year-on-year, Gore explained: "There's a material difference – while we saw reasonable volumes in the early part of 2019, we're seeing a substantial growth in the first quarter of 2020. Still, we've seen volumes trending higher of the previous 12-months, so there's also underlying business growth to factor in."
