Poor Liquidity Next Week Forces Some Brokers to Introduce “Close-Only”

Vantage FX is the latest brokerage to announce that it is implementing close-only operations until after the referendum.

Some brokerages that are taking measures to prepare for the referendum on whether the U.K. is going to leave the European Union are forced to take measures which may prove to be unpopular with clients. Vantage FX has announced this morning in a client note that the firm is going to put some pairs into ‘close only’ mode of operation.

The referendum has caused many brokerages to dramatically reduce leverage with both market making and straight-through processing (STP) brokers affected. Liquidity providers have also increased their margin requirements in order to protect their own exposure to market risk.

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In the case of Vantage FX almost all pairs involving the euro and the British pound are affected with a close-only mode of operation.

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Following is the list: GBP/CHF, GBP/JPY, GBP/AUD, GBP/NZD, GBP/SGD, EUR/GBP, EUR/AUD, EUR/CHF, EUR/JPY, EUR/NZD, EUR/CAD, EUR/TRY, EUR/SGD, USD/NOK, USD/SEK. The only two EUR and GBP pairs that are not affected are the EUR/USD and the GBP/USD.

Most brokerages in the industry are preferring to play it safe and prevent themselves from taking too much risk, despite risking an outcry from clients. Vantage FX has announced in a message to clients that it reserves the right to extend the close-only requirement to other pairs.

Goldman Sachs has issued a note to its clients warning them that the volatility across the foreign exchange markets is virtually warranted. Regardless of the result from the referendum, the British pound is likely to move sharply in either direction. The investment bank has estimated that the GBP could fall as much as 11 per cent in the case of a vote for Brexit. Goldman also foresees a drop in the value of the euro totaling 4 per cent and a rally in the Japanese yen totaling 14 per cent.

 

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