Cautious brokers are repeating the positive lessons of handling the Brexit turmoil and applying risk aversion measures to the volatile situation in Turkey. By limiting the ability to open highly leveraged positions on the TRY in these uncertain times they can prevent both a systemic failure and an exposure that is likely to hurt many clients in case of an unprecedented price move.
In terms of volatility, we can see that after the TRY/USD fell as much as over 4.5% in the wake of the alleged coup attempt, it has today bounced back over 2% today – very significant in an industry focused on PIPs per day.
Internationally regulated brokerage FxPro has notified its clients that TRY pairs have been placed under trading limitations. TRY pairs have been transferred to Close-Only mode on MT4 and MT5 accounts while they have been completely disabled on cTrader.
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Simon Smith, Chief Economist of FxPro, commented about the situation in the country: “The events in Turkey late Friday and over the weekend have been the main influence on markets so far, with the Turkish lira recovering more than half of the losses seen late Friday as the dust settles from the attempted coup. Naturally, there are going to be more far reaching consequences for Turkey, both domestically and beyond, with the latter likely to be top of the agenda at the meeting of EU foreign ministers today.”
He further explained to Finance Magnates: “The decision to change to close only was based on the sharp move seen Friday as news started to emerge, together with the likely further volatility today. This was seen, EURTRY recovering around half of the move seen late Friday. In these situations, our first priority is to protect our clients if volatility is likely to be high and liquidity low resulting in much higher spreads. We enacted similar measures over the Brexit vote, which proved to be successful in protecting our clients.”
Cyprus-regulated brokerage Blackwell Global Investments has increased margin requirements on EURTRY and USDTRY. They wrote to clients: “As your broker, we are deeply concerned about your financial security and we suggest that you avoid trading on the above instruments so as to minimise exposure to increased risks. Please ensure that your margin collateral is properly managed especially during this uncertain period – as such periods of heightened volatility can create possibilities of significant price gaps and periods of illiquidity, which can potentially put your account on a margin call.
We would like to stress that Stop Loss Orders are not guaranteed to be filled at your order level; Stop Orders are converted to Market Orders once triggered, and dislocations in available liquidity could result in significant slippage on Stop Orders. Blackwell Global will closely monitor market volatility and liquidity, and will reassess the margin requirements relative to the situation in Turkey and make the necessary adjustments thereafter.”