Coping with Brexit – How Did Forex Brokers Fare?

Yael Warman

Last Thursday’s UK referendum on EU membership led to the most significant political and economic event in the UK – and by implication Europe and the wider world – for decades. In an entirely unexpected result, UK voters opted to leave the EU by a margin of 52% to 48%. With polls closing on Thursday […]

London, Canary Wharf from Thames

Last Thursday’s UK referendum on EU membership led to the most significant political and economic event in the UK – and by implication Europe and the wider world – for decades. In an entirely unexpected result, UK voters opted to leave the EU by a margin of 52% to 48%.

With polls closing on Thursday evening at 10:00pm, Betfair’s initial reaction at that time was to predict an 87% chance of a victory for the Remain camp, a percentage similar to that of other bookmakers, and one that seemed more and more outrageous as the results were announced throughout the evening.

Friday’s trading saw the pound reach 30-year lows against the dollar, at one point trading below 1.34, before recovering slightly later in the day to finish above 1.36. This morning’s early trading has seen the sterling drop again to around 1.34, with analysts predicting that the sterling has further losses to endure over the next few weeks.

Warning investors not to assume that the bounce in the sterling was long term, Ric Deverell, Research Analyst at Credit Suisse, explains: “While we acknowledge the risk of a technical bounce back, we think the repricing in many markets has further to run. The dollar rally is forecast to continue, with the GBP to USD conversion moving into the 1.20s.”

With a Remain result being increasingly factored in to the value of the sterling in the lead up to the referendum, and the exchange rate almost reaching 1.50 at poll closing time on Thursday, forex traders were left dealing with a massive fall in the value of the sterling. As we reported last week, forex traders were taking the decision across the board to limit leverage, with many reducing leverages in sterling-based transfers in the lead up to the vote itself.

CFI Markets announced that they would be extending limited margin requirements at least until today, saying: “We would like to hereby inform you that CFI Markets will keep margins as is currently at least until Monday… Additionally, and although we will try to keep spreads as low as possible, these risk to be higher (sic) than in ordinary times.”

Other companies chose to limit margins even further, predicting that markets were likely to be hit by sustained uncertainty throughout this week. One such company was Hantec Markets, who issued a statement saying: “Hantec had earlier limited margin to 25:1 (pre vote), and will now limit leverage further to 10:1 on all spot FX, spot CFD, spot Oil an spot Bullion positions.”

On the whole, companies had prepared satisfactorily for the result, even if it was unexpected. IG’s statement was as follows: “The Company managed its operations and exposure very effectively through the night and into today (Friday).”

There were however several companies whose trading sites crashed during the night, leaving traders and customers very unhappy. Xe.com, one of the UK’s most popular currency trading apps, crashed early Friday morning, with the company saying that “It had been pounded by record-breaking levels of traffic prompted by the unprecedented event.”

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