On Friday morning, several Wall Street banks reported record currency trading volumes while they were preparing for three times the normal volume for the rest of the day. The trading spree was triggered by high volatility in the British currency before and after the Brexit vote.
Before the vote, the value of the British pound surged to historic levels as traders expected for the country to remain in the eurozone. But after the shocking vote, the currency plunged to $1.5 versus the U.S. dollar and kept slipping until it hit $1.33, the lowest level in more than three decades.
Analysts believe that the volatility helped major U.S. investment banks make overnight fortunes. Jamie Dimon chief executive at JPMorgan said that at one point the bank had to process 1,000 trading requests per second. Forex trading volumes jumped to historic highs overnight.
The next day, Morgan Stanley was pleased that they were able to cater for all its clients’ needs despite staggering trading volumes.
Goldman Sachs said that it has been instructing its staffers for “many months” for such scenario. The bank’s CEO Gary Cohn and Morgan Stanley CEO said that the Brexit vote won’t affect the way they run their business.
FX trading is very risky as traders use high levels of leverage for quick profit. When a huge currency swing occurs, investors can make fortunes if they are well-positioned, or lose fortunes if they lack inspiration.
Because currency trading is currently conducted electronically, banks are confident that they can handle huge currency swings without destabilizing the market. But even though the Brexit didn’t caught U.S. banks off guard, it is also important what the banks will do next.
Cohn said that the outcome of the Brexit will not be visible this year. The country will have to negotiate with the E.U. before it formally exits the eurozone. Cohn added that the bank has a long history of handling crises. So, it would cooperate with local authorities as Britain gets near to the formal exit.
Morgan Stanley CEO James Gorman dismissed rumors that the bank would relocate thousands of staffers on the continent. He expects the narrative to keep unfolding over the next months, and years to come. The bank now waits for Brexit’s real outcome, which will be visible in two years’ time, before making the next move.
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