Prolonged Volatility Pushes Brokers to Increase Margin Requirement across FX Majors

Forex providers are taking a cautious view of the current financial landscape which has seen uncertainty across major financial instruments. Saxo Bank joins JFD Brokers as the firms increase the amount of leverage offered on their platforms. The move follows on from immediate changes participants made in CHF crosses after the Swiss franc turmoil unfolded last week.

Saxo Bank will send a notification to its clients with revised margin requirements, the firm reported to Forex Magnates. The firm believes that after a lengthy period of little traction the markets were expected to gain back in motion. Steen Blaafalk of Saxo Bank explained in an emailed to Forex Magnates: "After a prolonged period of low Volatility across asset classes, we foresee a paradigm shift in the financial markets. We want to signal these new risks to our clients and ensure they are trading with sufficient margin in case of bigger, more extreme short-term market shocks as well as preparing them for a period of increased volatility."

The new measures will go live on the 21st of January.

Steen Jakobsen, Saxo's Chief Economist added, ”The lesson is clearly that the market has been trying to tell us for a long time that volatility was a function of an economic model of suspending the business cycle. When you suspend an economic system as the world markets for an extended period you ultimately release more energy when the business cycle starts anew.”

JFD Brokers increased margin requirements on the 16th of January, the broker's notice stated: "JFD Brokers will temporarily increase the margin requirement as follows:

All FOREX pairs will be changed to require 2% in margin (equivalent to a leverage of 1:50). All spot precious metals pairs will be changed to require 5% in margin (equivalent to a leverage of 1:20). Effective from Wednesday, January 21, 2015 through Monday, January 26, 2015."

Low leverage was a practice implemented post-2008 under the Dodd-Frank Act. Oanda is one of the few providers that limits margin to 2%. Leverage rules were altered in Japan and are expected to be implemented in Singapore.