Increased volatility is having a growing impact on capital markets, making how to trade through it the question of the moment.
Michael James, Capital Markets Sales Specialist, Colt Technology Services
Eleni Coldrey, Business Development Director EMEA for Financial Services, Equinix
In our new, joint Colt-Equinix mini-series, we’re looking at the factors disrupting the smooth operation of markets and what firms can do to protect their longer-term interests and performance. Market fragmentation and restructuring, the shake-up caused by moves to the cloud and the impacts of a data explosion are all having an effect, but volatility has the broadest reach, so we’ll start there.
The impacts of volatility are multiplying
Market volatility isn’t a new phenomenon; however, it’s been an increasing theme over the last ten years, driven in part by the rise of algorithmic trading. As trading algorithms take on a larger share of the decision-making and all make similar calculations at the same time, we’ve seen bigger shifts within the market.
At the same time, unknowns in the current economic and geopolitical environment are also ramping up volatility in capital markets. The pandemic triggered a spike, creating uncertainty about how trading would (or could) continue when traders needed to work from home. As this began to level out, the impacts of the conflict in Ukraine kicked in, raising uncertainty about oil and grain prices and commodity supply chains in general. Plus, the growth of inflation around the globe affects some markets more than others, bringing currency risks and a whole new cascade of concerns. Only recently, the Euro dropped to its lowest level against the Dollar for twenty years, with potentially enormous implications for the price of imports in the eurozone.
Alongside this, the fact that central banks are re-evaluating supporting the bond markets via quantitative easing, or the European Central Bank’s Transmission Protection Instrument, may reduce liquidity in some markets, further adding to volatility.
So, how can capital market firms mitigate the effects of this volatile environment?
Network monitoring technology can protect trading
When things are so changeable, success lies in reducing the unknowns.
Network monitoring technology can bring certainty and consistency to the data feeds and connections that are so critical to trading today. Decision-makers in banks and trading firms can then fully rely on the data they receive and improve their trading performance.
Without monitoring, if your algorithms work on the basis that you’re the first to receive information, you can never be sure you have a speed advantage. Your competitiveness is at risk.
What’s more, trading algorithms usually focus on the A data feed, leaving the B feed as a resilience backup. However, with monitoring the microsecond there’s an issue with the A feed the algorithm can switch to using the B feed, so there’s no drop in data flow. Microseconds count in a fast-paced electronic environment and can make the difference between a profit-making or a loss-making trade.
Monitoring technology provides constant visibility with up to a microsecond granularity into performance within your data feed, infrastructure, and trading platforms. This increases your control within a volatile environment.
Explore our partnership
Capital markets firms need secure, end-to-end solutions that are easy to manage, flexible and scalable. To achieve this, it’s important to choose a technology partner with global reach and proven expertise in building agile, hyperconnected and high-performance hybrid architectures.
Colt’s PrizmNet financial extranet allows firms to easily tap into global markets and liquidity sources. Thanks to an interconnection with the Equinix Cloud Exchange, Colt is expanding PrizmNet all the time – most recently by growing its footprint in Asia.
Read Colt’s new datasheet for the latest about PrizmNet’s capabilities and reach. Datasheet – Capital Market Equinix-Asia
Look out for the next blog post in our joint series, focusing on thriving through fragmentation, coming soon.