Trading Firms, IG, FXCM and City Index Hike GBP Margin Requirement and Spreads Ahead of EU Referendum Day
With volatility in foreign exchange markets expected to soar over coming days foreign exchange trading providers are enacting measures to avoid any adverse impact.
The retail trader is going to find the cost of trading rise over coming days as trading companies hike margins and spreads in anticipation of heightened market volatility around the EU referendum vote.
Such measures are taken by trading providers in order to cushion themselves from any losses presented by rapid and unnaturally large moves in the markets.
The volatility will provide a potential boon to the trading companies and traders alike.
Trading companies derive the majority of their profit from the spread on the spot rate they present traders.
Heightened volatility will meanwhile present traders with the potential for massive profits; if they are on the right side of the trade of course.
Trading firms are also likely to see heightened interest around the referendum with trading volumes forecast to spike - they therefore stand to see volumes and profits jump.
CMC Markets, for instance, have said the bulk of their London-based workers would be at their desks through the night after the polls close on June 23 to facilitate clients in their trading endeavours.
Margin Requirements and Spreads Hiked
Most markets are tipped to see a spike in volatility on the release of results on June 24th. However, market volatility is already rising with the options market said to be in a state of turmoil by one commentator.
As such margin requirements, particularly on GBP pairs are rising, and should continue rising through to June 24th.
Phillips Capital UK have announced that GBP currency pairs and GBP denominated instrument will see margins raised to 10%, with margins on remaining instruments raised to 5%.
“If the events of last January taught us anything, it was that markets can be extremely volatile when a major event occurs. When the SNB removed its EURCHF peg, the Swiss franc went from 1.20 against the euro to 0.975 almost without trading. Such an event can present an extremely risky and worrying time for any investors trading such markets,” says Head of Derivatives Trading, Sean Tan, at Phillips Capital UK.
If the UK votes to leave the EU Tan says we could experience unparalleled volatility for a period of time and so we are taking this action in the run up to the referendum in order to protect our clients against any extreme market movements.
This change is planned to be temporary and depending on market conditions following the vote, PhillipCapital UK will look to return the margin requirements to their current levels.
At 3pm today IG, the world’s largest spread betting company, will be increasing their margin requirement on stocks which may be affected by the EU referendum.
All GBP foreign exchange pairs are seeing an increase from 0.50 to 1%, this is consistent across some indices and UK listed stocks.
Forex trading specialists FXCM have already adjusted margin requirements from the 27 May for normal price fluctuations.
FXCM will further increase margin requirements on select instruments 10 June, 2016 and 17 June.
The affected instruments include all British pound and euro pairs while from the 30th of June traders will no longer be allowed to open trades on the main Swiss and Italian indexes.
Spread betting provider City Index will meanwhile be widening spreads on their most popular pairs. The EUR/GBP will see its spread widen from 1.3 to 1.6, the EUR/USD goes from 1 to 1.2 and GBP/USD from 1.5 to 1.8.
USD/CAD jumps from 1.5 to 2 and USD/CHF from 1.3 to 2.3.
