News & Analysis

The FTSE is finally volatile as 54 billion GBP wipeout was immediately followed by a surge

Andrew Saks, Tuesday, 20 July 2021

One of the most complained about aspect of the OTC markets over recent years has been the perceived lack of volatility, ranging from established indices to major currency pairs.

Even some of the world's most long serving FX and CFD industry professionals have noted that over a long period of their career, there has been a lack of volatility that has to some extent formed the entire range of instruments and how they are traded around a model that requires relatively low margin capital and depends on doldrums.

Things are now beginning to get interesting, however, because it is not just the occasional major currency pair that enjoys a blip here and there, or the occasional stock rising or falling.

This time, the FTSE 100 index has become volatile, and it has happened suddenly.

Over the course of the past few months, whilst the big blue-chip companies, many of which are listed on the London Stock Exchange's FTSE 100 index, have prospered whilst small companies have struggled, however things are now beginning to change.

For over 3 months, the FTSE 100 was at a massive high point, consistently over 7,000 points, which was often the subject of the use of many superlatives by the mainstream observers, but simply being at a high point itself is not enough, especially if the price stays roughly the same for months and does not move.

Volatility is what gets the markets going and now the entire FTSE 100 has it.

Just yesterday, an astonishing £54 billion was suddenly wiped off the value of the FTSE 100 index, partly due to concerns that large companies may have to close their doors once again as the noises from the government in the United Kingdom are looking very much like the next planned lockdown is on its way.

Many of the firms in the FTSE 100 index are multinational blue-chip companies, therefore are able to continue their operations from other offices globally, but if their main center of business is the United Kingdom, and Mr Johnson is on his soap box again, that would be enough to make shareholders begin to take a pessimistic view.

The 163 points that fell from the FTSE 100 yesterday took it below the 7,000 mark for the first time in three months, and then immediately as the market opened this morning, it rushed back up by 64 points, but is still below the 7,000 mark, languishing at 6,873.

The sudden rush down yesterday, then the sudden rush up are the two interesting dynamics.

When looked at over the past five days, it is down by an average of 215 points which is massive, but the last two days' activity is the critical point to watch.

Any major, prestigious index that moves this much in a short period of time after a long period of stagnation, just because of a few sentiments that are not necessarily all that new - most people know full well that the British government keep planning lockdowns in different guises - is of great interest.

Major, prestigious indices do not move with massive volatile curves very often, because by their very nature, they are composite indices featuring very stable, large, well-capitalized companies that conduct their reporting and governance properly and are based in top tier jurisdictions such as the UK or North America.

Thus, bearing this in mind, this is an unusual and perhaps welcome touch of volatility in the mainstream markets.



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