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LSE experiences drop in number of companies trading

A Drop of 17% in Five Years - London Stock Exchange Experiences Decline in the Number of Companies Trading [1]

Judging by the number of companies which are currently trading on the London Stock Exchange (LSE), by all accounts the trading platform appears to be losing its appeal.

In 2020 the number of companies trading on the LSE declined to an all-time low. Even though the platform is a powerful player in the global stock arena, it has seen a very gradual dip over the last five years.

According to research data compiled by https://buyshares.co.uk - a UK-based stock market educational platform, the number of companies trading on a monthly basis has gone down by approximately 17% between January 2005 and May 2020.

Crucially, while the number of companies trading in January 2005 stood at 2,424 - the month of May (this year) brought that figure to 2,005 firms (this was the lowest number for five years).
Although 2,024 companies were trading on the LSE by the back end of January 2020, by February this number was at 2,036 (0.56%).

Between February 2017 to April 2018 the number of companies trading remained, for the most part, unchanged, with an average standing at about 2,034. With that being said, April 2018 to May 2018 brought the LSE one of its highest increases in around several years, increasing to 2,163 (6.98%).

January 2015 brought the LSE possibly the highest numbers of companies (trading on a month to month basis) with the figure standing at 2,429 firms.

But, while this number did see a relatively stable period of consolidation, in January 2017 we saw a substantial drop - with the number of trading companies declining down to 2,261. A month later, we saw a 9.9% drop, with the number of companies standing at 2,037.

What Effect has the Coronavirus had on the LSE?

When the coronavirus hit the global stock markets, the number of companies which were trading on the LSE further dropped simultaneously.

Historically some of the worse losses in the LSE of all time, the coronavirus is a crisis which has affected the world as a whole. This, of course, also involved huge sell-offs and extreme volatility, with the crisis subsequently resulting in a loss of trillions of dollars in stock market valuation.

In 2019, economic activity was already slowing down due to the tensions caused by the United States and China trade 'talks'. For the LSE specifically, the pandemic only made things worse.

Then there's the uncertainty of Brexit, which seemed to go on for an eternity, as well as the weak growth in the Eurozone. As a result of all of these unfavourable events, the LSE hammered floating, which left the annual market value for that year at £3.92 trillion.

London Stock Exchange - Daily Trades

The average number of daily trades is a key metric and will change vastly on a daily basis. In its most basic form, it refers to how many trades have been traded on a particular stock, within that specific day.

This is all triggered by how dramatically investors have valued the assets (which have been listed).

The daily stock exchange numbers can greatly affect which kind of investors and trades it attracts especially when they are learning how to buy shares. The higher the average number of daily traders is, the more attractive it is to potential investors and institutional traders.

As fewer people or companies want to sell or buy low volume assets, you might find it more difficult to enter/exit at your ideal price. Generally speaking, the lower the average trading number is, the less competitive it is - and the higher the daily number is, the more competitive the asset.

The Verdict?

In a nutshell, as the global economy starts to open its doors again, the general consensus expects the wider stock market to recover. In fact, the vast bulk of pre-COV-19 losses have since been recovered.

With stocks like healthcare and technology continue to lead the way - there is potentially a positive indicator that the stock market, as a whole, will do just fine.

The writer is neither an employee, agent nor representative of FXCM and is therefore acting independently. The opinions given are their own, constitute general market commentary, and do not constitute the opinion or advice of FXCM or any form of personal or investment advice. FXCM neither endorses nor guarantees offerings of third party writers, nor is FXCM responsible for the content, veracity or opinions of third-party speakers, presenters or participants.
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