Danish multi-asset brokerage Saxo Bank has decided to increase margin requirements for its clients in the run up to the U.S. election. The move is a response to the company’s expectations of increased volatility around the vote.
The move is expected as despite the risks of a Trump win being substantially diminished lately, the outcome still represents a risk. As Finance Magnates already reported, a number brokers are looking at taking similar measures in the run up to the event.
Saxo Bank’s margin requirements increase will affect a set of different assets including FX pairs, equities and fixed income. The company is expecting that the results from the vote will have a significant impact on the market.
According to the company, Saxo will increase the collateral requirements on major FX pairs to between 2 and 3 percent, while currency pairs that include the Mexican peso and the Russian ruble could be affected more materially with the funds required to maintain a position reaching to somewhere between 10 and 15 percent.
The minimum margin requirement on contracts for difference (CFDs) on indices will be bumped up to 4 percent depending on volatility and market liquidity.
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Commenting on the matter, the Head of Markets at Saxo Bank, Claus Nielsen, said: ”We take a dynamic approach to our margin policy by ensuring that our requirements correctly reflect the market risks at any given time. As we enter the crucial few weeks ahead of the US election, and given the prominence of exposure to the US economy in our clients’ trading strategies, we want to ensure that our clients take advantage of trading opportunities with responsible leverage.”
“The merits of our approach to market-moving events were most recently shown around the UK’s EU Referendum, where we also raised margins and supported clients with relevant information, enabling our clients, in aggregate, to emerge profitably despite the high volatility during and following the referendum result,” he explained.
In the aftermath of the Brexit vote risk event, clients of Saxo Bank have managed to register substantial gains totaling over €200 million. The company has at the time increased margin requirements on GBP pairs substantially in order to protect the firm and its customers.
We seek to ensure that clients are appropriately leveraged. It is important for us to emphasize that neither Saxo nor our clients benefit from over-leveraging. Furthermore, we support a wide range of assets on our platform, and a multi-asset strategy is a good way to manage exposure and hedge risk around such geopolitical events as the US election,” Nielsen explained.
The company is not expecting the same levels of risk in comparison to the Brexit vote, as the chances of Trump are substantially lower than that of Brexit, however a new referendum in Europe is looming soon, that might shift the spotlight.
“Prime Minister Matteo Renzi takes his Italian Constitutional Referendum to the voters on December 4th which might be even more important for markets than the U.S. Presidential Election,” Mr Nielsen concluded.