Brokers Reduce Leverage in Preparation for Brexit Vote

Brexit Brexit Brexit stands for British Exit, or in reference to the United Kingdom’s decision to formally leave the European Union (EU) as declared in a June 23, 2016 referendum. In a more immediate sense, a tight vote and unexpected result helped drive British pound (GBP) to lows that had not been seen in decades.The day following the referendum, former Prime Minister David Cameron resigned from office where he was replaced by Theresa May, who later resigned from office on June 7th, 2019. Active Prime Minis Brexit stands for British Exit, or in reference to the United Kingdom’s decision to formally leave the European Union (EU) as declared in a June 23, 2016 referendum. In a more immediate sense, a tight vote and unexpected result helped drive British pound (GBP) to lows that had not been seen in decades.The day following the referendum, former Prime Minister David Cameron resigned from office where he was replaced by Theresa May, who later resigned from office on June 7th, 2019. Active Prime Minis Read this Term, the story that never dies, is having a real impact on brokers this week. A number of firms released statements this Monday, following on from the one Dukascopy made last Friday, indicating that they will be making changes to leverage requirements and preventing traders from opening new positions.

As reported by Finance Magnates at the end of last week, Dukascopy confirmed that it would be capping leverage at 30:1 for a UK stock index that it has listed on its platform. The Swiss broker, who said that the restrictions will be lifted only when it believes Brexit-related 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 has died down, also put the leverage cap on two crude oil trading pairs.

This was followed on Monday by a similar change in margin requirements made by Saxo Bank’s Japanese branch. The company issued a statement in which it said it was increasing margin requirements for all major GBP currency pairs from 2.5 percent to four percent - in other words, bringing leverage caps down from 40:1 to 25:1.

Saxo Bank noted the rules would affect existing positions. Traders who currently open trades in GBP will have to make sure they have the requisite margin or risk having their position closed by Saxo Bank.

Brexit Indices

Similar changes were made on Monday by FxPro. The broker said that starting at 10:00 am on Monday morning it would be increasing margin requirements to two percent for its European Union indices.

FxPro also said that it reserves the right, if need be, to prevent traders from opening positions in the wake of any Brexit announcement. Wider spreads, the broker added, are expected in the coming days.

More steps, akin to those above, are likely to be taken by brokers in the next 24 hours as they attempt to reduce the impact of any fallout from a Brexit vote. After the last big Brexit vote took place in June of 2016, there was a squeeze on liquidity that meant brokers struggled to meet their customers' demands.