A LeapRate interview… The CEO of global forex broker HYCM International, Stavros Lambouris, joined us in a conversation about the war, inflation, and crypto collapse. We discussed the eventful 2022, market trends and the opportunities for CFD brokers.
LR: What were the major events of 2022 that affected markets the most?
Stavros: On the geopolitical front, the situation in Ukraine has been the dominant headline throughout the year. The conflict has severely exacerbated the global inflation resulting from an unprecedented easing of financial conditions post-pandemic. Energy markets have been affected the worst, with those input costs bleeding into many other goods and services, particularly food prices.
In terms of economic milestones, we’ve seen a global tightening of financial conditions across both developed and emerging economies in order to bring down inflation. This has led the majority of global equity markets to decline and bond yields to rise, with risk assets, particularly in the tech and crypto sectors, to bear the worst of the selling pressure.
We’ve also seen a historic strengthening of the US dollar, which has benefitted from both of the above sets of conditions. The dollar has been the recipient of safe haven flows resulting from the great geopolitical uncertainty that markets have had to live with throughout 2022, and also from the Federal Reserve being out ahead of other central banks in terms of its interest rate hiking cycle, which is expected to peak at over 4% in 2023.
LR: What were the key market trends you observed in 2022, generally and specifically among HYCM’s investors?
Stavros: FX volatility has returned with a vengeance in 2022, due to many of the issues just mentioned. We’ve seen moves in some of the major pairs that have been difficult to believe as the DXY reached levels last seen in the wake of the dotcom bust in the early 2000s. This has occurred while liquidity has steadily drained out of risk assets, which, of course, were the big story of 2021.
Energy has been another prominent trading trend throughout the year, both in terms of commodities like crude oil and natural gas, but also the energy stocks, such as Exxon Mobile and Chevron, which have been some of the best performers throughout the year.
Copper has also been a big story in 2022, and will probably continue to be so in the years to come. It spiked to all-time highs earlier in the year on inflation fears, as well as due to the increased energy costs associated with its extraction and refining, then corrected sharply more recently as recession fears have thrown global growth into question. However, with copper being such a crucial material for industry, and particularly for the green energy transition, it’s likely that the volatility in its price will continue, particularly if China moves closer to abandoning its zero Covid policy in the new year.
Among HYCM investors, the three most popular symbols for Q3 were EURUSD, GBPUSD, and USDJPY, thanks to FX volatility. Our investors have also been very actively trading the US30 (DJIA), which has been the best performer of the major US stock indices in 2022 and our fourth most popular instrument in Q3. We have also seen a great deal of short interest on the US100 (Nasdaq), for obvious reasons.
LR: How do you view the state of the crypto market in 2022 and moving forward into 2023?
Stavros: Crypto has been the worst performer of 2022, by far, with the total market down around 75% from its highs late last year. Its collapse was to be expected following the unsustainable growth it experienced over the past two years. As a relatively young asset class, it tends to massively overcorrect on both the way up and the way down, as it still mostly sees speculative inflows. This is despite all evidence pointing to the underlying technology becoming a major part of the global infrastructure in years to come. Improved price discovery will dampen these overcorrections as the asset class matures as a whole.
The sentiment around crypto is currently as negative as I ever recall it being. This due to a higher rate environment, less easy money, and fears over a global recession being on the horizon. Such one-sided sentiment is usually an indicator that the bottom could be in. However, the recent collapse of the FTX exchange has really thrown this bottom into question. As the details of the misdeeds of FTX continue to emerge and we gradually learn more about how deep the contagion from its bankruptcy goes, only the boldest crypto traders are currently prepared to risk buying this particular dip, until further notice.
Things will come around again, especially with the next bitcoin halving scheduled for early 2024, which tends to be a catalyst for a lot of capital coming back into the space. At HYCM, we see the FTX event as an opportunity to reiterate the value of crypto CFDs as a way for investors to gain exposure to crypto, with the option of leverage, as well as an easy way to trade both long and short.
Much of the success of FTX was that it offered the kinds of leveraged instruments that traders seek, which the regulated exchanges couldn’t. I think it will be important for our industry to get the message across to investors that we have the experience in offering leveraged derivatives across a range of markets, and that our industry has been doing so for many years, through one crisis after another, in a regulated environment, without the kinds of excesses and spectacular blow-ups that the crypto industry seems to keep experiencing.
So, I think now is a perfect moment to really double down on the strengths of crypto CFDs, and help traders differentiate the products we offer from what’s available elsewhere. The purchase and holding of crypto as a bearer instrument is one thing, the sorts of sophisticated derivatives we offer on margin are quite another. I think HYCM is very well positioned to gain a larger share of this market by conveying our expertise in offering these instruments in a regulated environment, with account segregation, deposit insurance, and sound accounting practices.
LR: Finally, on the corporate level, what were the major developments for HYCM in 2022 and how do you see the company continuing to grow in 2023?
Stavros: This year we celebrated 45 years in the business, which is a big milestone for us as a group. I’m enormously proud of our company for continuing to excel in such a competitive industry as ours. Built on the values of heritage and culture, we were always committed to providing first-class trading experience and supporting our investors. With the new generation of trader emerging, we will focus more on technology and innovation with an aim to become one stop solution for easy access to traditional and new markets.
Starting with the launch of our new all-in-one mobile trading app, we enabled users to engage with our services exclusively through a single mobile interface, from registration and verification, to account funding, management and trading. It came at the perfect time as we saw that more and more traders shift from web platforms to mobile apps. We’ve been able to offer something to our customers that brings the markets much closer to them, with the same leading security and execution standards we’re known for, in a highly functional and user-friendly package.
We continue providing our investors with the educational, informational, and analytical materials in our blog HYCM Lab and via our weekly webinars and workshops, as well as a suite of different trading tools through selective third-parties such as Trading Central, Financial Source, and Seasonax. We also added PAMM service on our MT5 platform this year as a tool to help our Partners attract investors.
Last but not least, we’ve seen an increase in interest around the stock trading throughout the year, which we’re determined to capitalise on with an exciting development to be announced early in 2023. So, stay tuned!
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High-Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.