Brokers have braced themselves for a volatile market today (Monday) due to the impact of the latest Middle East turmoil. The first course of action: increase margins and limit the leverage offered.
Brokers and Prop Firms Proactively Decide on Margin Increases
Contracts for differences (CFDs) brokers and prop firms have already started sending notices to traders, informing them of higher margin requirements and leverage limits from Monday’s trading session.
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TMGM, an Australian-headquartered broker with a massive presence in China, has “temporarily increased” the minimum margin levels for withdrawals and internal transfers from 200 per cent to 500 per cent.
The5ers, a prop firm, also reduced its leverage on oil, metals and indices to 1:5. The firm usually offers up to 1:33 leverage on oil and metals and 1:25 on indices.
Region-Wide Turmoil with Global Effects
The strike by the US and Israel on Iran has now created region-wide turmoil, as Iran responded by striking US bases in other Middle Eastern countries. The possible Iranian blockade of the Strait of Hormuz, through which around a fifth of the world's seaborne oil trade flows, raises concerns about a sudden supply drop in the global oil market.
As Asian markets opened today (Monday) morning, Brent crude jumped about 5 per cent and US crude climbed about 4 per cent per barrel. Metals also rose, with gold gaining about 1 per cent at the start of the trading week.
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Meanwhile, Asian stock markets fell sharply at the open, with Japan’s Nikkei down 1.4 per cent and MSCI's broadest index of Asia-Pacific shares outside Japan falling 1.2 per cent. Dow and S&P 500 futures also dropped by about one percentage point.
Brokers and prop firms, especially those heavily exposed to B-book models, are trying to protect themselves from this increased volatility by raising margin requirements. Many were even reeling from a massive gap in their P&L after the one-sided rally in gold earlier this year and were said to have been saved by a one-day drop in the yellow metal.
It is likely that more CFD brokers and prop firms will follow with increased margin requirements today (Monday) as the day progresses, especially before the opening of the US markets.
