Forex brokers are warning their traders of volatile trading conditions in financial markets, flagging the risk of large gaps, widened spreads, higher margins, and trading halts. These difficult conditions could become increasingly common as investors fear the impact of the coronavirus outbreak and a war of price oil between the Russians and the Saudis.
Letters from British spread better IG Group, Switzerland’s forex bank Dukascopy, and other firms show the scale of concern around next week, and the prospect of sharp one-off moves in different assets.
The outcome of current geopolitical turmoil, energy wars, and coronavirus pandemic are seen as increasingly hard to predict. As such, FCA-regulated IG Group has sent a letter to clients informing them that there is a significant risk that markets may gap when they re-open on Sunday night. They also added that their traders should be wary of system-wide circuit breakers in regulated central exchanges as IG platforms would follow suit whenever a trading halt occurs.
Europe’s largest online trading platform further states that there will be a delayed open on our cryptocurrency and weekend markets on Saturday, March 14.
“At IG, when a down limit has occurred, you will only be able to buy – whether to open or close a position – through phone dealing. However, please be aware that the price may be significantly lower when the market re-opens,” the letter reads.
In a notice to clients dated March 13, Dukascopy banks has also warned clients of increasing bets on US Indices and Stocks during volatile market swings in comings days.
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“Please be aware of temporary lack or full absence of liquidity on all CFD instruments especially on US Indices and Stocks. Underlying Futures Markets may experience hitting a limit down price (being close to 5% circuit breakers) which triggers temporary absence of quotes,” Dukascopy said.
SNB’s black swan
Dukascopy and other brokers said they would take special measures in anticipation of higher volatility and trading volumes. These would include widening or suspending price limits as liquidity runs out of the market and spreads consequently widen. This also could have a knock-on effect on open trades, trigger stop-outs, and liquidate accounts as markets turn.
These warnings come after many US brokers experienced massive outages throughout the last two weeks, resulting in clients getting kept out of the market during sensitive times. Robinhood, Fidelity, TD Ameritrade and Charles Schwab, experienced trading downtime amid heavy trading volumes, before managing to restore its systems.
Some customers who reported that they had troubles or technical difficulties with access to their investment accounts shared their fury on social channels. On its part, online brokers blamed the unprecedented load on their servers caused by volatile market conditions, record trading volume, and huge flows of new users.
That said, such warnings have become more common as the memories of the SNB’s black swan still embedded in brokers’ minds. In early 2015, many banks and brokers booked millions of dollars of losses in a matter of minutes following the decision announced by the SNB to no longer peg its currency to the euro. Interactive Brokers, IG Group, London Capital Group, and CMC Markets suffered steep losses while Alpari UK closed its doors, and FXCM had to receive a $300 million rescue loan from Leucadia. Saxo Bank also took a hit, and its net loss from the Swiss franc event totaled more than $100 million.