Constitutional Referendum in Turkey Prompts Broker Caution on Turkish Lira

Foreign exchange brokers are taking measures to limit their exposure to risks arising from the exchange rate of the Turkish lira. On Sunday, the country is taking to the polls to vote on a constitutional reform that is crucial to the future of the country.

The country’s currency has been losing value in the past several years as the President of the country, Recep Tayyip Erdogan, gathered support to call for changes to the constitution. Sunday’s referendum is likely to cause material Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders Read this Term on Monday morning as the Turkish lira market opens for trading.

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XM Markets Cuts Leverage on Turkish Lira

XM Markets is one of the first brokers to announce that the company is introducing a cap on leverage of 1:20 (5%) in the run-up to the event. The broker is also warning about prospective thin market Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term, price gaps and abnormal spreads.

The changes will apply to all pairs that include the Turkish lira provided by the brokerage, namely the USD/TRY and the EUR/TRY. XM Markets will introduce the higher margin requirements of 5 percent on Friday at 13:00 server time, which is set at GMT +3. The measure will apply to both open and new positions.

Margin requirements will revert back to normal after the normalization of market conditions and the official announcement of the results from the referendum. Clients are urged to review their positions in order to avoid forced closure.

A ‘Yes’ vote is likely to further worry investors into the Turkish economy and result in material capital outflows from the country further exacerbating the decline of the Turkish lira. Conversely, if the vote is rejected, the currency is likely to rally materially.

CopyFX, Hantec, JFD, HotForex, AAAFx, and LiteForex Join Margin Requirements Hikes

Several other brokers have joined XM Markets in hiking the margin requirements on Turkish lira pairs. With the difference between the 'yes' and the 'no' camp in the referendum vote being close to the margin of error for the polls, uncertainty is rising materially. The level of 1:20 appears to be the preferred choice for brokerages that are limiting their clients' access to leverage on TRY pairs.