Danish multi-asset brokerage house Saxo Bank has sent out a note to its clients informing them about its new tiered leverage structure for foreign exchange trading that is going live on Monday, the 25th of April 2016.
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Clients of the brokerage are going to get access to margin requirements as low as 1 per cent (1:100 leverage). The Danish brokerage has embarked on a series of reforms to its offering over a year after it drastically limited access to leverage for its clients after the SNB Crisis.
Back in January, Saxo Bank also introduced a new offering for foreign exchange trading where spreads are starting from as low as 0.2 pips. With a tiered commission rates structure, depending on the tier in which a client falls, the rates range from $20 to $60 per million.
Commenting to Finance Magnates, Saxo Bank’s Head of FX Sales, Neil Browning said: “Through the launch of FX tiered margining, Saxo is offering clients responsible leverage at competitive rates taking into account the available liquidity in the market.”
“Our tiered margining offering is also highly intuitive in that it is currency pair based, hence each position has a margin requirement as opposed to having to look across single currency exposures,” he elaborated.
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Saxo’s New Tiered Margin for FX Trading
Saxo Bank will introduce a tiered margin methodology applying to its broad range of foreign exchange products – spot, forwards and FX options. The rate will start from 1 per cent for a total exposure. Tiering refers to applying different margin requirements to different exposure tiers, i.e. a low requirement for a small exposure and a higher requirement for larger exposures.
The tiered margin approach is applying a gradually increasing margin requirement as a function of exposure. The different exposure tiers are defined as an absolute number of USD exposure across all currency pairs. In each exposure tier Saxo Bank has a margin rate for each currency pair.
In total Saxo Bank has defined 7 tiers, but not every pair will have 7 different margin levels. The first tier is for exposure limited to $1 million, second tier is from $1 to $3 million, third tier is for $3 to $5 million. Further along there are four other brackets ranging up to $50 million in larger steps.
FX Competitiveness in Focus at Saxo Bank as it Expands in Asia
The recent changes to Saxo Bank’s foreign exchange offering are achieving two goals – the new margin requirements and commission structure are making the company’s product more attractive for retail and institutional investors alike. With the opening of new markets for the Danish multi-asset brokerage, the competitiveness of its offering is essential.
At the same time Saxo retains its ability to manage risks and exposure of its clients and consequently of the bank itself to the market. Following the Swiss National Bank’s move to remove the floor from the EUR/CHF exchange rate, Saxo Bank suffered losses that exceeded $100 million.
The newly announced tiered margin policy will both limit the exposure of the bank when its high-net worth clients have big positions and allow smaller traders used to higher leverage the flexibility to access the market with a competitive offering.