In recent months, we have seen a surge in gold trading volumes. The increase in turnover in precious metal products isn’t surprising; there has been a lot of volatility for gold and silver pairs in recent months. Funds have been adjusting their asset allocation to reduce risk and combat volatility. The pivot into gold was risk aversion 101. Most asset managers, investors and traders were looking to gain short term exposure into gold until a longer-term game plan could be implemented. Those risk-off moves had to compete with opportunistic high-frequency & proprietary trading firms taking advantages of volatility and swings.
What has been intriguing for us is a noticeable uptick in new enquiries from firms looking to optimise their access to spot gold liquidity. It seems many buy-side firms have been caught off guard recently as they looked to gain exposure to precious metals. Gold pricing and trading conditions presumably haven’t been a concern for many firms for some time, especially as a CFD instrument.
Portfolios that diversify into gold likely own physical bars which are held for years, as opposed to derivatives with potentially expensive rollover fees on long term positions. Understandably, brokers, dealers and liquidity providers have been caught off guard by the recent switch in the behaviour of their clients and changes in market conditions. However, being unprepared is not a reasonable excuse for failing to meet clients expectations, especially during a period when most investors are executing contingency measures during uncertain times.
Most brokers emphasise their ability to access deep liquidity; meanwhile, totally overlooking the all-important breadth of the market that helps achieve favourable entries. As we’ve explained in the past, every buy-side firm needs a custom prime feed. One of the most striking services we offer at Scandinavian Capital Markets is our ability to design custom liquidity feeds for our clients. The past few months have really put our capabilities of building the best liquidity feed to the test.
Our ability to quote gold with weights of 100 oz or 1,000 oz at the top of the book has proven to be extremely helpful for our clients, especially for those trading via MetaTrader 4 which lacks level two pricing and order book visibility. By having click sizes that correspond to your average order size or position size, slippage risk can be reduced significantly.
Besides getting more predictable fills, having a larger click size will improve backtesting and modelling helping results to line up with real trading conditions. Many trading platforms do not factor slippage into backtesting results, and traders overlook this too.
Our higher volume clients have appreciated slightly receding what you see is what you get pricing as opposed to the razor-sharp top of book quotes that are never attainable. We’ve heard of many cases where clients found themselves agitated by the volume-weighted average price (VWAP) as orders were filled by sweeping up several levels from the book (which they couldn’t see). As your strategy scales with more AUM or looks to get more exposure to precious metals, the click size can be increased on-demand to ensure your price feed is calibrated to your strategy.
cTrader has proven to be a favourite for our large ticket traders because of the level two price transparency that is available.
If you’re ready to learn more about the custom gold price feed solutions. In that case, we offer at Scandinavian Capital Markets, reach out to one of our experienced relationship managers who can assess your flow and suggest solutions.