City Index anticipates silver trading frenzy with 15% margin rates
Reddit traders are leading a democratic movement of empowerment in trading. A number of institutions have already taken hits to their balance sheets and to their names. Anticipation has become the name of the game for many retail brokers. A change in margin requirements will do in the short term, but business models will inevitably be reviewed as Reddit traders are likely here to stay.
City Index has updated its margin requirements on Silver due to recent volatility in the markets caused by the r/WallStreetBets mania. The new required margin starts at 15% from today for non-MetaTrader clients. For MT users, the new margin rates go into effect before markets open on Sunday.
The UK FCA authorized retail FX and CFD broker also warned traders to ensure their accounts are adequately funded to maintain their open positions as there remains a risk of gapping at the market open. The firm’s own analysis states that “it seems unlikely that a small group of investors could drastically move the market”.
“Unlike equities that generally require substantial margin of 50% up to 100%, silver can be extremely leveraged in many trading markets requiring as little as 5% on deposit. This means the effects of a short squeeze can be even more dramatic than in a stock like GME”, the City Index analyst wrote, adding that “the same algorithmic trading strategies that propelled GME could be even more effective in silver, due to a more decentralized market with much different regulatory obligations.”
Given the dramatic outages and trading restrictions that took place last week as retail brokers found themselves and their business models unsuited for the subreddit phenomenon, trading firms are starting to anticipate the potential adverse effects of the silver trading frenzy. This could prevent established brokers from destroying their good name in a matter of days as happened with Robinhood and IG Group, among other big names.
City Index has also updated the list of restricted markets under the United States Executive Order 13959. These Chinese equities are now placed on “close only” trading for clients:
China Telecom Corp (HKD) CFD
China Communications Construct CFD
China Railway Construction CFD
China Mobile (HKD) CFD
CRRC Corp Ltd CFD
SMIC (Semiconductor Mfg Intl) CFD
China Unicom (HKD) CFD
China Mobile (USD) CFD
FinanceFeeds continues to monitor the current situation as times are certainly changing.