Can We Sustain High Trading Volumes During the Pandemic?

Peter Bukov

The current surge in FX trading appears to be from new traders, with many forex brokers reporting a 25% average month-on-month increase in forex accounts.

Pandemic and High Trading VolumeIt’s been a year since the coronavirus broke and the financial markets are still grappling with significant uncertainty. But not all businesses are struggling to cope.

COVID may have negatively impacted many businesses but the FX industry was not one of them.

Forex brokers have been largely unscathed by the pandemic, and in many cases, the industry has seen a significant boost over the past year.

Those familiar with forex trading are undoubtedly aware that the past few months have seen massive growth across a wide range of trading platforms and commodities.

The current surge in FX trading appears to be from new traders, with many forex brokers reporting a 25% average month-on-month increase in forex accounts.

Extensive growth like this is highly unusual in the forex industry.

The average daily forex trading volume increased by no more than 40% over the last decade. Of course, the remarkable shift is a direct result of this year's unusual financial and economic climate, which has resulted in one of many high-impact factors.

What caused the increase in trading volumes?

You may be wondering what created such a surge in trading volumes during the pandemic. The likely explanation is that traders who were having to work from home had more time to devote to trading. Also, many people coping with a looming financial crisis and actively seeking new income sources turned to trading for the first time.

Volumes were also impacted by people who had been interested in trading but hadn’t previously had the time to take it up. With the lockdowns, travel restrictions, and working from home these people suddenly had the time to learn how to trade. More importantly, they were also incentivized by global events presenting a once-in-a-lifetime opportunity to benefit from massive market volatility. Naturally, this meant increased market interest and trading activity.

Permanent shifts

According to new research from leading financial services analysts, the global pandemic may have permanently altered the forex market’s inherent structure. The view is that, although pricing and volumes may return to normal, the way in which trading volumes are channeled, which was significantly altered during the coronavirus, and will likely continue into the future.

For example, the pandemic prompted an increase in volumes through single-dealer platforms and voice trading, as more traders emphasized the importance of relationships with dealers in the forex market as perceived liquidity declined.

Forex traders are also now breaking up larger trades and delaying trade execution, behavioral shifts that will very likely play out analysts say, even after the global crisis has passed.

Conclusion

The circumstances leading to 2020’s surge in forex trading volume have been unprecedented.

 As we enter the pandemic's second year and with the vaccines being rolled out, the global economy is looking like it will return to a semblance of normality soon.

Sustaining those trading volumes seen last year is unlikely. However many of the adjustments the industry made in order to manage the surge in demand will likely stay on well into the future.

Peter Bukov
Peter comes from a background in corporate finance which began in 2013 when he completed the Corporate Finance Program at the University of Economics in Bratislava. He’s been actively involved in the market sector since 2008 and got his hands-on experience in trading in 2011.

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