Market Turbulence Takes Effect as Volumes Fall
The turbulence and uncertainty in the market is apparent by the results in the second quarter of 2008. Many investors are now opting to avoid the markets at the current time, resulting in reductions in trading activity.
Trading volumes in equities continue to decline quarter on quarter, although unlike in previous quarters, this has not been counteracted by an increase in derivative trading. In fact, for the first time both Spreadbet and CFD trading volumes reduced quarter on quarter. Growth in collectives and cross border trading has prevented a larger fall in total trades, although a 3.7% reduction in total trades is still a significant drop.
Those investors who remained active in the market viewed the market conditions as a buying opportunity, especially the individual clients of execution only firms. This is highlighted by an increase in purchase content to 53.9% in the execution only sector.
Despite the fall in trading volumes, the execution only sector still is performing well and following an increase in their revenue per trade as well as a reduction in costs, the profitability of these firms improved during the second quarter. Profit margin for execution only firms increased from 18.1% to 23.9%. Wealth Managers, however, had a tougher quarter resulting in falling profit margins. Revenues have fallen at a faster rate than the decrease in funds under management and, without a significant reduction in costs, the profit margins of wealth managers have fallen below that of execution only firms for the first time over the last three years.