Thriving in Volatility: How Firms Are Managing Risk and Finding Opportunity
Volatility has been the defining feature of global capital markets in recent years. After a decade of relative calm, sharp market movements are now the norm. At the recent TT Connect: The Evolution of Execution event in London, speakers explored how growing global risks and persistent volatility have impacted how they approach markets.
Equity markets, particularly in the U.S., remain stretched, with valuations in technology and AI-related sectors at record highs. At the same time, government debt across most major Western economies continues to rise.
These factors increase risk in an already volatile environment. In April this year, U.S. markets posted record intraday moves in the wake of the announcement of global tariffs on imports to the U.S.
Prolonged Volatility
TT Connect panelists argued that volatility is unlikely to go away anytime soon. The difference today is that firms have built the tools and frameworks to better handle market stress in real time.
Increased clearing, improved collateral management, and investments in pre- and post-trade data processing have made markets far more robust than they were a decade ago. During the volatility around the outbreak of COVID-19, serious weaknesses were exposed in derivatives market post-trade infrastructure, resulting in prolonged settlement times and backlogs of trades at central counterparty clearing houses (CCPs) and clearing firms. These issues have largely been addressed by the sell side’s investment in post-trade processing.
While the market’s foundation is stronger today, each crisis brings new risks, and no period of volatility is the same. A crisis in government debt, for example, could negatively affect the value of collateral posted at CCPs. A collapse in confidence in private credit could revive fears over systemic risk in the banking sector.
Risk and Opportunity
Buy-side firms described how they are adjusting portfolios to reduce exposures and manage these growing risks. Popular trades include short-term duration fixed income and flight-to-safety assets, such as gold and, increasingly, Bitcoin.
For proprietary trading firms, volatility brings opportunity. These firms play a vital role in providing liquidity during periods of market stress. For them, real-time analytics, automated controls and smarter margin processes are essential to manage the risk of sharp market moves and to maintain their ability to stay in the market.
For the sell-side clearing firms, volatility provides opportunities from higher volumes but demands discipline and a laser-sharp focus on risk and margin management. One major clearer described volatility management as a “shared responsibility,” starting with setting the right risk limits and ensuring that clients understand and operate within them.
During the April spike in volatility, margin requirements in some instruments rose by more than 1000%. Yet margin calls were met and systems held firm. This resilience didn’t happen by chance; it came from investment in intraday risk tools, strong governance frameworks and experienced teams who knew what to do when volatility surged.
Future-Proofing Risk Management
While firms across capital markets came through the April volatility relatively unscathed, tougher tests inevitably lie ahead. To prepare, the industry is adapting its approach to risk management to future-proof infrastructure against the next shock. Firms are stress-testing risk models against new scenarios and investing in real-time, enforced risk controls that automatically adjust positions or halt trading when risk thresholds are breached.
But effective risk management isn’t just about technology; it’s also about culture. One participant noted that during volatile market sessions, they set up a “war room” to ensure seamless communications between traders, risk managers and technology teams. This enables faster decision-making and the ability to learn lessons on the fly.
The Key Takeaway
Volatility isn’t going away. The firms thriving in today’s market are those managing risk intelligently, leveraging both technology and human interaction to react quickly and effectively.
They combine robust infrastructure with cross-company collaboration, automation with accountability and data with human judgment. Even as automation increases efficiency across the trade life cycle, human oversight remains essential.
A common theme across all discussions was collaboration between trading, risk, operations and clearing. Technology and data management can provide the information needed to understand volatility patterns, but ultimately, humans steer the course through it.
Lessons are learned from each period of volatility as weaknesses in systems and market structure are exposed. Collaboration is essential both internally and across the market to strengthen resilience and prepare for the next shock.