June 10, 2020

Quantifying Available Liquidity in the Time of COVID-19

It is not news to say that the global health crisis has rocked financial markets. But when we go beyond the daily swings in price movements, what information can help traders better adapt to current market conditions? LiquidMetrix offers a series of insights derived from our data and analytics.

What kinds of strategies have traders used over the past few months? Which strategies have been the most effective for accessing liquidity? Have there been any significant shifts in the strategies used as markets moved from “normal” into the high volatility period that marked the initial stages of the health crisis and then back to relative normality?

The headline bullet points are:

  • Post the volatility spike there has been an increased use of high touch compared to low touch strategies.
  • After the volatility spike, sell orders and orders with a longer duration of 2-4 hours to complete were largely given to cash desks for trading.
  • The overall narrative is once market volatility jumped; traders went back to a traditional risk adverse strategy of trading more difficult, larger sell orders through cash desks.

First, an overall description of the market environment. As we have noted in previous weeks the last few months have been marked by high volatility. Figure 1 below shows the volatility measured by the VIX and the research client universe. The VIX measures forward looking volatility and the client universe measures actual daily volatility in traded stocks, but the curves are essentially the same. We can make two observations: (i) Volatility spiked in mid-February; and (ii) Although volatility has come down, it is still at much higher levels than before the mid-February spike.

Figure 1

To read more, please click here.

By Henry Yegerman, ISS LiquidMetrix

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