At least two major brokers have informed clients about the upcoming liquidity squeeze during Asian hours in the coming weeks. The ascension of the new Japanese emperor Naruhito to the throne is going to result in a ten day holiday in Japan. With Tokyo being one of the major FX centers in Asia, brokers should be vigilant over prospective thin liquidity pockets.
While Tokyo has lost the crown as the most important FX center in Asia, it is still the third largest hub in the region behind Singapore and Hong Kong according to data from the Bank of International Settlements from 2016.
IC Markets and Dukascopy have informed their clients about the long Japanese holiday and warned about prospective poor liquidity conditions.
Flash Crash Risks
As Finance Magnates highlighted last week, the prospective risks for liquidity are especially pronounced for Japanese yen pairs. In the first days of 2019, a number of JPY crosses have collapsed, with the yen rallying across the board for a very short burst of time. The resulting liquidity crunch impacted all major currency pairs to a certain extent.
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Industry insiders Demetrios Zamboglou and Jeff Wilkins highlighted some of the issues which brokers and traders could face over the next two weeks in their exclusive comments to Finance Magnates. Those include broad liquidity issues as well as increased risks around the overnight roll-over period.
Brokers Communicating Risks to Clients
IC Markets has highlighted in its announcement that market conditions can be “hazardous” and mentions both the GBP flash crash from October 2016 and the Japanese yen one in January 2019. Both events have led to huge issues for clients and brokers alike, and even caused losses at several Japanese brokers.
IC Markets communicates to clients that markets in Asia are likely to be slower than usual. The company states that it reserves the right to change leverage and urges its customers to use stop-loss orders and exercise additional caution.
Dukascopy is highlighting that the company is going to apply 11-day swaps to the value of all Japanese yen positions Wednesday, April 24 which was last night. The company is signaling to its customers that poor liquidity conditions could be present and they should expect increased spreads during the period when the Japanese markets are closed.
The reopening of the Tokyo FX market is set for May 6, and this is when brokers and clients should expect liquidity conditions to normalize.