Ruble Carnage Continues as Brokers Halt Trading, Cut Margin
Despite customers reporting problems at several brokers, traders on the whole are benefitting from the spike in prices. Some brokers
After the rapid decline the Russian ruble has experienced following the Bank of Russia’s emergency interest rate hike of 10.5% to 17.0%, the currency’s price continues to tumble. The USD/RUB has now risen over 12% to just around 73.00, well above its low of 60.80 achieved in the moments after the rate hike.
Brokers are reporting that the volatility has caused banks to remove pricing and liquidity from the currency, thereby limiting the ability for hedging customer traders. As a result, broker customers have reported problems with order execution throughout the day, with at least two firms, Alpari RU and eToro, stating publicly earlier to clients that they have halted trading in buying the currency due to limitations from liquidity partners. Alpari even went further and has just now announced it is stopping all trading on USD/RUB and EUR/RUB.
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Liquidity available but with wide spreads
The market, though, isn’t completely shut down. Several market data vendors, including LMAX, continue to be providing continuous price feeds and trading today. As a result, at many brokers, trading in the USD/RUB is business as usual, just much more volatile. However, pricing has been consistently wide, with 1-2 ruble spreads the norm much of the day. Some firms have announced that they are cutting leverage going forward in the ruble.
Nonetheless, despite customers reporting problems at several brokers, traders on the whole are benefitting from the spike in prices (those that can close positions). At eToro, their sentiment reading shows customers long/short ratio at 89%/11% while other brokers have indicated to Forex Magnates that clients are overwhelmingly long.
Philippe Gelis, CEO and co-founder of Kantox, commented on the wider situation: “For companies concerned about rouble volatility, they should aim first and foremost to protect themselves from currency risk via foreign exchange hedging products such as forward contracts to stave off the threat of further rouble depreciation against the US dollar and euro. However, many FX liquidity providers are now withdrawing hedging options on the rouble due to extreme volatility in the currency, similar to what occurred in 1998 when RUB convertibility stopped completely. In the next few days or weeks a recurrence of events in 1998 is a very real possibility – a complete halt to any transaction be it spot or forward.”
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Broker Updates
Looking ahead, several brokers have forwarded trading updates in regards to the ruble.
Saxo Bank: Trading continues with no halts during the session. But margin is being increased Wednesday to 20% for the first EUR 300,000 of clients margin collateral – previously it was 4% – and 40% for margin collateral above EUR 300,000 – which previously was 8% (effectively, maximum leverage cut to 5:1 from 25:1).
FXCM: Will discontinue trading in the USD/RUB tomorrow as they stated, “Due to the extreme instability in the Russian Ruble, FXCM will be discontinuing trading in the USD/RUB pair beginning Wednesday, 17 December. FXCM expects that key Liquidity Providers will stop pricing this pair as early as this week in anticipation of the Russian government potentially enacting currency controls.”
RoboForex: Trading suspended until tomorrow with ongoing trading limited to daily sessions of 9AM to 6PM until the end of the year. At that point trading in the USDRUB will be suspended until January 11th.
GAIN Capital: “Due to highly volatile market conditions in USD/RUB, the required margin on new and existing USD/RUB positions will increase to 20% (5:1 leverage) effective 8am ET on 17th December 2014. During this period of instability, USD/RUB spreads may widen and significant price gaps and periods of illiquidity may occur.”
A good step forward and a huge opportunity as the Chinese FX market begins to open up.
Aren’t micro lots $1,000? So it’s a typo; it should be mini lots at $10,000 or micro lots at $1,000.
Yes, RMB denominated futures, FX and CFDs markets have grown tremendously in the past few years in China. What are the best ways to gain market share as a foreign company in China? The Shanghai money expo was packed all the top FX companies, but very few of them actually have a physical office presence in China.
@Keith – not a typo, it is $10,00o for mini-lot. Lot size definitions are different for OTC and futures. You can see all the details here: http://www.cmegroup.com/trading/fx/usd-renminbi-futures.html
@Ron – Thank you for the clarification.
@Andrew – Is there a way for foreigners to establish a local forex company as a market maker in China? Currently, the only two ways I have seen are rep offices that function as IB managers and education/training offices.
all these brokeres were lamenting over low volatility just few month ago as a reason for their dropping trading volumes, now when volatility is on its top they do their best to prevent their clients to trade. Do they understand their business right?
^^ brokers do need to hedge their risk as if a client is on the “wrong” side of a RUB trade and the broker cannot offset this without a bonafide LP then they have to do something. A-book/b-book is a minor issue at this point. If you were a physical product wholesaler (or retailer), would you intentionally warehouse a product that you could not get rid of later?
But this is a great opportunity for speculators with access to get in the game