FXDD is the latest brokerage to introduce margin changes to its clients, 3 months after the Swiss National Bank (SNB) removed the floor under the EUR/CHF exchange rate. These amendments to the collateral requirements are affecting the Swiss franc (CHF) and the Turkish lira (TRY) pairs.
The move reflects improving liquidity conditions on the Swiss franc. Traders are now able to open and hold positions on the pairs, including the CHF with 50% of the leverage on their account.
Meanwhile, FXDD is going to increase the leverage requirements on TRY pairs, as the country is facing a parliamentary election on June 7th 2015. There are no major surprises expected with the long dominant Justice and Development Party (AK Parti) aiming for its fourth consecutive term.
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Clients of FXDD willing to trade TRY pairs will have to put up to 10% of the position’s value, which translates to 1:10 margin requirement. The move is described by the brokerage as temporary, but it outlines some changes which may become more widely adopted consequential to the SNB move in January.
Active risk management adoption has been a long time coming to the FX market. The black swan event which hit the bulk of the foreign exchange industry in January 2015 was the critical marker which prompted brokerages to begin reassessing their leverage offerings.
We are yet to see more events similar to the one that triggered a 35% move in the Swiss franc this January. The Scottish independence vote in September 2014 was another scenario which the market hasn’t discounted for. If we see an abrupt political change in a number of countries, their currency markets can easily fall into turmoil with liquidity rapidly disappearing from the marketplace.