FX brokerage firm, OANDA, made an historical decision today to double leverage from 50:1 to 100:1. In the past, the firm has offered a maximum leverage of fifty to one but has urged caution, encouraging clients to stick to a leverage of twenty to one. Hence, today’s announcement marks a significant change in the risk appetite of the firm.
The firm has historically discouraged higher leverage offered by a number of brokers, stating on its website that: “Some companies may offer 100:1 leverage, or even 200:1, but OANDA believes these levels are far too risky and could cause clients to lose all their funds very quickly. Serious professionals seldom trade at those levels of risk.”
The firm has historically discouraged higher leverage offered by a number of brokers.
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The question, therefore, is why has OANDA decided to up the ante now? In the notification it sent out to clients, it cited client feedback as the main driver, stating: “OANDA are committed to continually improving the products and services we offer to you. From your feedback, we are happy to announce that 100:1 leverage is now available for FX major pairs”.
As retail brokers compete for market share low leverage may be seen as a deterrent to potential clients. Indeed, the amount of leverage is one aspect that traders consider when evaluating the pros and cons of different brokers. The additional leverage minimises the likelihood of a margin call on over-week trades (as well as increases potential returns).
The decision may also be a geared towards ramping up revenues in advance of a potential IPO. Indeed, last year, CEO of OANDA, Ed Eger, told Finance Magnates that taking the company public would be “a milestone in the course of a longer journey for OANDA.”
The new leverage ratio will apply to the following currencies: AUD, CAD, EUR, GBP, JPY, USD, NZD, DKK, CHF, SEK, NOK.