UK Election May Cause Brokers to Cut Leverage Once More

Another election, another set of margin requirements hikes on the cards

The upcoming UK election on June 8th is likely to cause some brokers to once again look into increasing margin requirements. The pockets of volatility trend that started with black Thursday on the 15th of January 2015 is now focusing on yet another political event.

After the Swiss National Bank wrecked havoc across the foreign exchange industry, brokers have become way more cautious around major volatility events. The losses that were suffered by the industry in the aftermath of the sudden spike in the exchange rate of the Swiss franc has made companies way more risk-averse.

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Last year the UK referendum on Brexit and the US Presidential election triggered margin requirement hikes. This year, the focus is on Europe with the Presidential election in France being the first major risk event for the currency markets. With the election in Germany looking set in stone for Angela Merkel, the ball is back in UK’s court with the looming Parliamentary election in June.

Why is the British Pound Sensitive to the UK Election

Until recently, the UK election looked like a done deal, with the Conservatives set to win the vote with a conformable margin of over 20 points. In recent days the gap has sharply narrowed, sending the British pound lower.

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The risks around the vote are associated with an effective anti-Brexit vote to dethrone Theresa May from the government no matter the cost. And the cost is the election of Labor’s populist leader Jeremy Corbyn, who has pledged to continue with the Brexit process, but has taken a rather soft stance.

Corbyn is also vowing to dramatically increase social spending programs and raise taxers for the rich, a policy which is greatly worrying investors. The British pound is negatively reacting every time Labor picks up in the polls, and could rally if Theresa May secures a conformable majority.

For a number of readers this might be puzzling, since Mrs May has committed to exiting the European Union whatever the costs are. The reason the GBP is rallying is because a comfortable majority in British parliament would help the current Prime Minister of the UK to take a softer tone on Brexit since she will not need the parliamentary support of the most conservative members of her party that advocate a hard Brexit.

Frist Broker to Hike Margin Requirements

Forexyard is the first broker to commit to change margin requirements for its clients around the UK election. The CySEC regulated company will require a 2 percent collateral for positions on all global stock indices it is offering. The changes are set to come in force on the 8th of June at 03:00 GMT.

For the time being no additional conditions are introduced on the British pound. The company intends to restore margin requirements to normal at its discretion, depending on market conditions.

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