Global Foreign Exchange Intelligence VIII in the first half of 2020 (Major event inventory)

Source: Fazzaco 2020-08-07

Chapter Five Important Events in the First Half of 2020

5.1 Circuit breaker activated four times

The US stock index S&P 500 hit circuit breaker levels on March 9, 2020 minutes after the opening bell as global markets plunged amid investor fears about the coronavirus global pandemic, resulting in a trading halt of 15 minutes.

On March 12, Dow Jones dropped by 9.99%, S&P 500 by 9.51%, and NASDAQ by 9.43%, triggering the circuit breaker again and resulting a 15-minute trading halt.

The plunge, a 30% drop within a month, was even faster than the A-share market in the summer of 2015 when Shanghai Composite Index fell from 5178 in June to 2850 in late August, an drop of 45%.

The circuit breaker was triggered for another two times on March 16 and 18, while in the past decades, it was only triggered once.

That the stock market hit circuit breaker twice in a week was a scenario never seen even by Warren Buffet, which was a signal that it was heading from a bullish market to a bear one.

Even the safe-haven assets, such as gold and Bitcoins started to plummet on March 11. COMEX gold fell by 6% to less than $1600 per ounce, wiping out all the increase from July 2019. People began to to believe “cash is king”.

5.2 Expanding gold spreads

In the midday on March 24, 2020 an unusually wide spread of gold prices (from dozens of to over 400 pips) occurred between many brokers and market.

It resulted from the lack of physical gold supplies caused by the coronavirus pandemic when London Exchange lasted closed and institutions and banks in Europe and America adopted automated trading mode.

In response to the wider spreads, MetaQuotes, Saxo Bank, LMAX, CFH, and other liquidity providers suspended gold trading. Many brokers noted that under such an extreme circumstance, they couldn’t make sure of the precision of the quote and reminded traders that they should check whether the platform was in sync with the market when the quote was halted.

5.3 Negative crude oil price

At the end of January, 2020 when the number of confirmed cases of coronavirus disease started to soar and the pandemic spread, the demand for crude oil began to fall. After oil-producing countries failed to reach an agreement on cutting crude oil supply, they ended up in a price war, causing the plummet of crude oil price.

The domino effect led to the volatility of the global stock market. On March 7, the crude oil price fell by 30% after opening bell. On April 11,OPEC and non-OPEC Ministerial Meeting, chaired by Saudi Arabia, was held to reach an agreement on cutting crude supply. During the meeting, the crude price continued to drop.

On April 20, crude oil spot price in the US and Canada declined to below zero. WTI, the largest crude oil futures market, witnessed a crash in crude futures of over 300% to -$40.32 per barrel.

The price remained negative even after a rebound. It was the first recorded minus price of crude oil futures since 1861.

The negative price also taught a painful lesson to Chinese investors. On April 22, the Bank of China said in a statement that its main investors would settle trades for its crude oil futures trading product at -$37.63 per barrel, which was based on the trading price quoted by the Chicago Mercantile Exchange (CME) .

The Bank’s attitude was capricious. It first stated the settlement price would be set at -$37.63 per barrel, but said in early May that 20% of the margin would be compensated to the investors with a deposit of less than 10 million yuan based on the price at 22:00 on April 20, 2020.

The lesson told investors that even large institutions may have risks or loopholes. Investors shouldn’t try bottom fishing without repeated thinking.

5.4 Complaints on IC Markets

On March 20, 2020, IC Markets was put in the firing line because of its unstable network access, delayed money withdrawal and order deletion.

Traders complained that they suffered losses due to poor network connection caused by drastic fluctuation in the market, and some doubted its commitment to transferring money to the bank account within 1 to 5 business days. Others said they often failed in logging in IC Markets personal center even with VPN. They had to refresh the website or wait for a long time.

To this end, fx110.com contacted IC Markets, and it replied “one of our payment channels was slower than the past because of the coronavirus pandemic, so numerous clients come to ask us for explanation.”

Besides, many introducing brokers of IC Markets said “most clients have already received their money in spite of delayed withdrawal of funds to bank account under the special circumstance.”

IC Markets was no the only one to suffer. Market volatility brought to many brokers not only opportunities but also complaints about “poor network connection”, “failure in deposit and withdrawal”, “wider spreads and slippages”, “log-in failure”, “unintended auto position opening”, “order deletion”, to name a few.

To add fuel to the fire, overwhelming questions and complaints paralyzed IC Markets customer service.

The trouble was not limited to IC Markets but also the whole industry. Customer service falling short of market demand would result in intensified conflicts between brokers and clients, adding insult to injury to those who have already faced a hard time in the time of adversity.

Complaints are not noteworthy, but ignorance is. Don’t let the customers feel they have been ignored.

Brokers should establish a communication mechanism with investors instead of standing high above the ordinary people and turning a blind eye to their pursuits. If the users’ demand can be heard and responded, it will lead to a win-win outcome, avoiding misunderstandings while building good reputation for the broker.

To deal with the roller coaster movements in the market, many brokers have adopted countermeasures to prevent recommitting the same error. The major risk-averse measures are as follows:

Decrease the maximum exposure limit on instruments;

Clients with positions having exposure to large moves in most asset classes may expect higher capital requirements ;

Increase margin requirements by up to 5 times than their normal level or further reduce the 5% buffer for activation of liquidations to allow clients to individually manage their risk reduction activities.

Brokers’ performance varied when facing growing uncertainties and risks. Some have made profits against trend and even hit a new record, while others have withdrawn from China’s market.

In a volatile market, opportunities always go along with risks.

Summary

FX industry fears no risk or fluctuations because they bring new transactions and investors.

As the emerging offshore regulation model rises, fx110.com is still fighting a war against fake brokers with the help of an army of traders in the industry.

Brokers and introducing brokers are on the rise, expanding its reaches in mainland China’s market.

As the 80/20 rule suggests, profits makers are always the minority.

Despite all the twists and turns in both personal trading career and market development, opportunities outweigh setbacks and the future of the FX industry is promising.

Intelligence

Global Foreign Exchange Intelligence VIII in the first half of 2020 (Major event inventory)

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