Brexit from a vendor’s perspective: Leverate highlights brokers with automated risk management

As Britain’s public prepares to vote in just a day over two weeks’ time in the most poignant referendum in modern times, the outcome determining Britain’s membership of the European Union, FinanceFeeds has spoken to a number of FX brokerages with regard to how they will manage the pre and post referendum period with regard to potential volatility that may ensue with the EUR and GBP currency pairs.

Over 43 years have passed since Brtain was signed into membership of the EEC (European Economic Community) and thus far, no public referendum has ever taken place.

During the 1980s and 1990s, the wish to have a referendum by the British public became increasingly prominent, and on June 23, 2016, the electorate will decide Britain’s united or independent future.

Those who favor a British withdrawal from the European Union – commonly referred to as a Brexit, the acronym being a portmanteau of ‘Britain’ and ‘Exit’ argue that being a member undermines national Parliamentary sovereignty, while some in favor of membership argue that in a world with many levels of supranational organisations any theoretical loss of sovereignty is more than compensated by the benefits of membership of the EU.

Those who want to leave the EU argue that it would reduce pressure on public services, housing and jobs; save billions in EU membership fees; allow the UK to make its own trade deals; and free the UK from EU regulations and bureaucracy that they see as needless and costly.

Those who want to remain argue that leaving the EU would risk the UK’s prosperity; diminish its influence over world affairs; jeopardise national security by reducing access to common European criminal databases; and result in trade barriers between the UK and the EU. In particular, they argue that leaving the EU would lead to job losses, delays in investment coming to the UK and risks to large and small business.

Among those wishing to leave are certain high profile city executives, including CMC Markets founder and CEO Peter Cruddas, who donated £1 million to a campaign which advocates Britain’s exit from the EU.

FinanceFeeds has taken a close look at how retail FX brokerages are intending to navigate any volatility that may arise during the period before and immediately after the referendum, with many taking a wisely cautious line of raising margin requirements, and in some cases ensuring that traders have no open positions during the day of the referendum.

It is potentially a period in which there may be a ‘black swan’ event because the outcome is yet unknown, and the reaction of businesses, governments and lawmakers, as well as central banks in Europe is unknown whether the outcome is that Britain stays in or leaves the EU.

Today, FinanceFeeds spoke to Nicc Lewis, VP Marketing at FX brokerage technology solutions provider Leverate, in order to gauge how Leverate will assist its customers, retail FX brokerages, during the period in the immediate advent and aftermath of the referendum.

Mr. Lewis explained “The Brexit been on our agenda for a while.”

“It is a case of making sure that risk management is at the very top of the agenda” continued Mr. Lewis. “Brokerages have learned time and time again from potential black swan events, therefore the best practice is to implement top quality risk management if a significant event is coming up.”

“We don’t see the referendum or its outcome as a big deal, however we have been training brokers how to react. For those running automated risk manangement systems like ours, it is important to look out for certain instruments, and to know how to put filters in place, as well as being able to look forward and see where should exposure be on certain currency pairs” – Nicc Lewis, VP Marketing, Leverate.

Leverage is a killer during potential black swan events

Mr. Lewis concurs with FinanceFeeds that high leverage is a very risky factor during geopolitical events that may cause market volatility.

“In any event, we believe tht brokers should have learned this long ago and therefore should not be offering such huge leverage ratios” he said.

In conclusion, Mr. Lewis said “No company in this industry should be waiting to see what hapens, but should have already learned, therefore a potential black swan isn’t a big thing. Companies should have a close eye on the business, they already know that the referendum on June 23 is on the calender, and therefore should have all the relevant risk management procedures in place, as well as a 24 hour time frame for human intervention if necessary.”