The chain reaction that led to a significant volatility in Transaction Costs
The 2020 market volatility has led to higher spreads and higher transaction volumes. Because of the logic of the slippage methodology and how costs are calculated at individual transaction level, the aggregated transaction costs volatility has significantly gone up and it’s not without consequences.
The initial phase of the pandemic brought high levels of anxiety amongst investors, which translated into market volatility levels being multiple times higher than usual. Even in the months of July, August and September 2020, market volatility remained 50-100% higher than the phase before the pandemic.
For operations and businesses, it means that, due to the higher volume of market data you consume from your data provider, you must pay even more attention to the quality of that data because when the spreads get higher, inaccurate data can have a significant impact on the transaction cost number disclosed to the market.
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