The following is a guest editorial courtesy of Barnes Clanachan, an Institutional Account Executive at Finalto, an innovative prime brokerage that provides bespoke fintech and liquidity solutions. Finalto deliver best-in-class pricing, execution and prime broker solutions across multiple assets, including CFDs on Equities, Indices, Commodities, Cryptos and rolling spot FX, Precious and Base Metals, and bespoke products such as NDFs.

No risk, no reward. In markets, this is a structural fact. Returns exist because the future is uncertain. If outcomes were known, there would be no excess returns. With perfect knowledge of the future, there would be no price discovery, because there would be nothing to discover.

But it’s possible to have too much of a good thing, as periodic shocks to the financial system have demonstrated. The goal isn’t to avoid risk, but to manage it, but that’s easier said than done. Electronically traded markets are highly complex, and participants are sophisticated and globally interconnected.

As readers will be acutely aware, the current moment is marked by an unusually high level of political and geopolitical risk, which has become a significant driver of precious metals markets. Macroeconomic uncertainty adds another layer of instability, while leverage can amplify shocks, particularly given the differing depths and liquidity profiles of the gold and silver markets. Recent turbulence in metals prices offered a timely reminder of the importance of assessing both the resilience of trading systems and the robustness of risk management strategies.

Franc talk

We can also look back to the 2015 Swiss franc shock, a far more significant market event. Two key lessons have endured since then. First, even the most seemingly robust and stable markets can experience sudden liquidity crunches. Second, and perhaps less obviously, risk strategies that appear conservative may not be as resilient as they seem.

That latter point extends further when considering the Global Financial Crisis, the defining risk event of the modern financial era. In 2008, we learned how instruments intended to disperse risk, such as credit default swaps, could instead transmit and amplify it in unpredictable ways.

Fundamentals matter

Since then, much of the financial services industry has internalised lessons in resilience and adaptability. It’s a rule starkly proven by an exception. Consider the case of Silicon Valley Bank: an episode where fundamental risk protocols were arguably not in place, and where the absence of basic hedging proved far more dangerous than the presence of complex financial instruments. That case affirms that risk itself is not the problem; how it is managed is.

But these historical examples might raise a broader question. Is the juice of price discovery worth the squeeze of financialised capitalism? Modern financial markets are prone to crises, but they are hardly unique in this regard. Systems that suppress risk or obscure information often create even greater instability. As Robert Shiller has observed, open systems with overlapping safeguards manage risk more effectively than opaque, centralised command economies, where hidden vulnerabilities can be impossible to manage.

What history tells us

The ultimate lesson of history is one that will be familiar to every financial services professional: past performance is not a guarantee of future results. It’s a lesson we apply in our own organisation. At Finalto, we were satisfied when our systems and strategies worked as intended as precious metals markets swung wildly. But the lesson we took to heart is that our strategy of continual improvement works, not that the systems are perfect in their current form. History teaches that we all need to work hard to anticipate future shifts. That doesn’t mean predicting the future; it means continuing to develop resilience.

All opinions, news, research, analysis, prices or other information is provided as general market commentary and not as investment advice and all potential results discussed are not guaranteed to be achieved. The information may have been derived from publicly available sources, company reports, personal research, or surveys. Past performance is not indicative of future performance. Trading carries risk of capital loss. Service available to professional clients only.