To Brexit or to Bremain? That is still the question
In just three days time, Britain casts its vote on its future membership of the European Union. Leverate’s Yael Warman looks at how the retail FX industry is preparing for the referendum.
Will Britain exit or remain come June 23rd? That has been the question for weeks, since discussions began about whether Britain would remain as part of the European Union, or detach itself from it.
Nobody asked the people of Great Britain whether they wanted to be part of the EU, but now that the consideration to exit from it is on the table, the people are going out to the polls and everyone who has a vested interest in the results of the referendum has their eyes and ears stuck to the news outlets.
Both Forex traders and brokers have a lot to lose or win pending the Brexit outcome and that being the case, action is being taken on all sides in order to prevent a black swan- type crash come June 23rd.
A lot is being said to compare Brexit to the Swiss Franc mayhem of a year and a half ago and brokers around the globe are bracing themselves in similar ways.
While the possible effects of Brexit’s outcome in terms of volatility may be similar to those that occurred on January 15th of 2015, there is a world of difference between a sudden, unannounced black swan-type event and an event that has provided notice weeks in advance and allows both brokers and traders the time to plan and adjust their strategies.
Some experts assure that as long as brokers and traders have a sensible risk management strategy in place, there is no need for additional action, however, brokers have begun taking preemptive measures. We know that some of the big brokers around the world are making customers more aware of trading risks and increasing margin requirements.
OANDA for example, announced clients that it would be lowering its maximum available leverage on sterling pairs to 20:1 and on euro pairs to 50:1, while IG Group will increase its starting margin rates on all FTSE 100 contracts and pairs involving sterling and Saxo is increasing its margin level requirements to 7% for trades that involve sterling and 8% for trades of instruments within the FTSE 100. Other large brokerages like FXCM, TradersWay, Forex.com and PhillipCapital UK are also raising margin requirements.
But if you are a small brokerage, what should you be doing to protect you and your clients from potential losses?
Sami Mana, Chief of Staff at Leverate, the leading technology provider for the financial trading industry, weighs in: “In order to navigate the volatility that is bound to be brought by the Brexit outcome, brokers need to have good risk measures in place and optimize their levels for margin requirements and determine their maximum acceptable exposure. If you are a broker that does not have a dealing desk operating 24 hours a day, this is a good time to consider paying them overtime.”
“Design a Golden Sheet considering all the possible scenarios you can think of and IFTTTs (if this, then that). Increase the stop level of your traders. Consider lowering the maximum position amount. Iff you lack the financial backing to overcome a black swan event, consider setting the system on close only mode for certain crosses and asset, holding/delaying trading and perhaps even closing trading of certain instruments” concluded Mr. Mana.
