The volume traded on the UK stock markets has fallen considerably to its lowest point since 2002, amidst widespread fears of a potential double-dip recession as the cost reduction measures of the new UK coalition government start to bite. Cautious trading behaviours and a tendency away from trading equities in the current financial climate have driven the levels of share transactions to a new low, as traders hold-off on larger investments while the economy continues its modest recovery.
With analysts predicting the possibility of a double-dip recession, and the UK economy by no means recovering strongly, the overarching uncertainty of the markets can account for the drop in trading volumes. On current projections, 2010 will see just £2.5tril in traded equities, compared to over £4tril traded 3 years ago, highlighting the degree of downturn in investment. Understandably, this could have significant effects for companies looking to raise capital from the markets, and could indirectly hamper the economic certainty on which much of market trading depends.
On a positive note however, traders shying away from stock market investments are being driven to alternative modes of generating a return, including spread betting and derivatives trading.
While trading in derivatives and spread betting pose particularly high comparative risks, the rate of return afforded by highly leveraged trading is making for an appealing investment prospect for more active traders, and even fund managers are investing heavily in contracts for difference to bolster their ailing portfolios.