Commodities trading spikes globally, DIY investors feast on Ukraine war

Do-it-yourself (DIY) investors around the world have taken heightened interest with a responsive upswing in their sentiments in trading commodities such as gold, natural gas and oil on trading platforms since the February 24 invasion of Ukraine by Russia . As a result of this strengthening of investors’ sentiment, global retail client participation in commodities across trading platforms climbed by 85 percent in the first three months of the year 2022, a recent report by trading and investing platform, Capital.com, through its proprietary report, Pulse, which captures global trading patterns across 6,000 instruments, shows.

Commodities had the biggest influx of trades in the first two weeks after the invasion of Ukraine began on 24 February, the report states, adding that over the same period, DIY investors showed significant interest in higher-risk tech stocks with the Nasdaq 100 index emerging as the number one most-traded market among investors, followed by US crude oil and bitcoin.

The report also found that the rush into commodities was not the only notable impact from the Ukraine crisis on retail-trading behaviour. The conflict triggered frenzied trading activity in many areas, especially during the initial days, as investors appeared to chase volatility and as a result, the number of traders across all asset classes surged 72 percent, the day the invasion started causing the total number of transactions to skyrocket by 113 percent the same day.

Similarly, the most striking retail-trading theme of the first quarter was a broad investor move into commodities, as prices of everything from crude oil to metals and grains rallied to multi-year highs. The number of commodities traders increased by 66 percent from December to March. Pulse, the report, highlighted that the trend accelerated from late February as the crisis in Ukraine threatened long-term supply disruptions in commodities.

Oil prices hit a 14-year peak at $130 per barrel before falling back, while the prices of metals from nickel to silver and palladium surged. Other commodities such as wheat also saw significant rises, understandably as Ukraine is a major grain producer.

Gold saw a 103 percent increase in participation on February 24, suggesting increased demand for the safe-haven asset as geopolitical risks spiralled higher. Activity in the yellow metal remained hectic over the following days, leading to a 1,194 percent single-day spike in trading volumes on 28 February. Also, traders in the dollar-rouble currency pair increased by 261 percent on the day of the invasion and sentiment towards that exchange rate went up by 21 percent.

The first quarter of 2022 Pulse report tracked the retail trading behaviour of platform users between 1 January 2021 and 31 March 2022 capturing over four million platform users across the world. The report further revealed that trading volume across all assets climbed to a new record despite the climate of heightened risk, up by 33 percent from the previous three months.

These findings suggest that retail investors responded nimbly to world events in the first quarter of 2022, switching markets as required and applying their personal insights to the issues.

According to these insights, so-called meme stocks, such as GameStop and AMC Entertainment, during the first three months of the year, were less attractive to retail investors. By contrast, companies with a stronger focus on Cloud-based technology activity and software – such as Autodesk, Meta Platforms, Microsoft, Matterport, Cloudflare, Roblox, Shopify and Unity Technologies – drew considerable interest. Consequently, investor participation in these tech stocks rose 26 percent over the quarter.

According to Pulse, the increased interest in commodities comes at a time when technology and meme stocks, last year’s darlings of the trading world, have taken a beating. Tech stocks were battered last quarter as inflation in advanced economies hit levels unseen in decades, forcing central banks, including the Federal Reserve and the Bank of England, to raise interest rates. Meme stocks seemed to lose some of their shine, with a slowdown in trading volumes.

Critical was the fact that the investor migration into commodities appeared to be in direct correlation with the recent upbeat price action in these markets, which suggests the world may be entering a so-called commodity supercycle.

Furthermore, the recent buoyancy in raw-material prices may have appealed to traders looking to sidestep increased volatility in equities and cryptocurrencies. However, cloud-based stocks drew a considerable increase in the level of investor participation from Q4 of 2021 to Q1 of 2022 with percentage change between quarters for the top tech companies by market cap and top meme stocks by Reddit mentions.

Nevertheless, widespread market gloom had its effect on retail traders even among tech companies as long positions in these shares dropped by 16 percentage points during the period. Bullish positions in Unity Software fell 30 percentage points, while those in Microsoft and Meta Platforms declined by 18 points each. Autodesk was the only stock that saw an increase in long positions last quarter while airline stocks saw high levels of trading at the start of the geopolitical crisis in Eastern Europe. International Consolidated Airlines (IAG), the parent of British Airways, saw a whopping 1,877 percent jump in the number of traders on the first day of the Russian offensive compared to the previous day.

Commenting on the report, David Jones, chief analyst at Capital.com, said “The data from our research shows that DIY investors generally oscillated between ‘buying the dip’ in tech stocks, chasing momentum in energy markets or seeking refuge in gold and dollars in Q1. Investors and traders came into 2022 concerned about the implication that higher inflation would have on world markets. But those worries took a back seat in February following the Russian invasion, and attention switched to chasing the momentum in commodity markets such as oil – and mitigating the broader market risk by buying gold.

“Markets were largely down in January, and tech was the big casualty amid bubble fears and stocks wildly detached from price/earnings ratios. The plunge accelerated following the Russian invasion – at its worst in mid-March the Nasdaq 100 was down 20 percent for the year to date. But that trend ended. The last two weeks of March saw a significant recovery, and today we see Nasdaq stocks back at January’s levels. The question our traders may be asking for the next quarter is: Could this be merely the ‘dead cat bounce’?” Jones said.