Goldman Sachs as Trading Thermostat

Chidem Kurdas

Goldman Sachs reports that its net revenue from fixed income, currency and commodities trading dropped 53% from the same quarter in 2010. The firm attributed this mainly to having taken less risk due to global uncertainty. But in part the fall comes from lower volumes of trading by clients—among them, hedge funds. 

This fits in with reports that big funds have been trading less in recent months. One would expect it to show up in Goldman’s client activity, and it has.

Is trade volume recovering? Chief financial officer David Viniar says there may be some uptick in the risk Goldman takes but it is too early to tell. If the bank adds risk, probably hedge funds will, too. But between unrest in the Middle East, shakiness in European debt and concern about US growth, the uncertainties remain.

What effect this will have on returns is the question investors ask. Managers risk two types of error—losing money by trading too much vs. not making money by not trading. Trade volume is not down in all markets. Trading in futures, by and large, has been up. But some large funds appear to be trading less.

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