US Watchdog Enforces Higher Margins on FX Crosses, 3% on JPY & AUD
- Retail FX brokers in the USA will be adhering to regulatory requirements to increase margin values on certain major and exotic financial instruments. The move comes amid heightened volatility in global markets.
The NFA has made a formal announcement to regulated broker-dealers offering OTC foreign exchange instruments. The regulator advises brokers to implement increased margin levels on five currency pairs. The move follows on from an earlier announcement made in the week which had a similar request.
The NFA’s executive committee has made a second crucial announcement in respect to the margin levels brokers charge clients to open positions. The financial watchdog identified five currency pairs that require changes in the amount of margin brokers offer them at. US brokers offer a maximum of 50 to 1 or 2% margin on major crosses, the current news requests brokers to increase the margin on the Japanese yen and Australian dollar to 3%. In addition, the watchdog has requested brokers to increase margins on exotic pairs, including the Brazilian real, Mexican peso and Russian ruble.
The NFA notification states: “As you know, on Jan. 21, 2015, NFA's Executive Committee exercised its authority under NFA Financial Requirements Section 12 and increased, until further notice, the minimum security deposits required to be collected and maintained by FDMs under Section 12 for transactions involving the Swiss franc (5%), Swedish krona (3%) and Norwegian krone (3%).
At the time of those increases, NFA alerted FDMs that NFA was continuing to monitor market conditions and that the Executive Committee could decide to make additional increases to these or other currencies if market conditions warranted. Given the continued Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders Read this Term in the foreign currency markets, the Executive Committee has determined to increase the minimum security deposits required to be collected and maintained by FDMs under Section 12.”
Major Currencies:
Japanese yen – 3%
Australian dollar – 3%
Other Currencies:
Russian ruble – 20%
Brazilian real – 9%
Mexican peso – 6%
The measures will take effect from 5 p.m. (EST) on Monday, January 26, 2015 and will remain in effect until further notice, the watchdog states.
Leverage has been a key talking point after brokers and traders suffered during one of the biggest market moves of the decade when the Swiss central bank tweaked its interest rate and peg, thus affecting the price of the currency against euros. Brokers such as Alpari UK offered traders up to 500 to 1 leverage, a core reason behind the downfall according to market practitioners.
The NFA has made a formal announcement to regulated broker-dealers offering OTC foreign exchange instruments. The regulator advises brokers to implement increased margin levels on five currency pairs. The move follows on from an earlier announcement made in the week which had a similar request.
The NFA’s executive committee has made a second crucial announcement in respect to the margin levels brokers charge clients to open positions. The financial watchdog identified five currency pairs that require changes in the amount of margin brokers offer them at. US brokers offer a maximum of 50 to 1 or 2% margin on major crosses, the current news requests brokers to increase the margin on the Japanese yen and Australian dollar to 3%. In addition, the watchdog has requested brokers to increase margins on exotic pairs, including the Brazilian real, Mexican peso and Russian ruble.
The NFA notification states: “As you know, on Jan. 21, 2015, NFA's Executive Committee exercised its authority under NFA Financial Requirements Section 12 and increased, until further notice, the minimum security deposits required to be collected and maintained by FDMs under Section 12 for transactions involving the Swiss franc (5%), Swedish krona (3%) and Norwegian krone (3%).
At the time of those increases, NFA alerted FDMs that NFA was continuing to monitor market conditions and that the Executive Committee could decide to make additional increases to these or other currencies if market conditions warranted. Given the continued Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders Read this Term in the foreign currency markets, the Executive Committee has determined to increase the minimum security deposits required to be collected and maintained by FDMs under Section 12.”
Major Currencies:
Japanese yen – 3%
Australian dollar – 3%
Other Currencies:
Russian ruble – 20%
Brazilian real – 9%
Mexican peso – 6%
The measures will take effect from 5 p.m. (EST) on Monday, January 26, 2015 and will remain in effect until further notice, the watchdog states.
Leverage has been a key talking point after brokers and traders suffered during one of the biggest market moves of the decade when the Swiss central bank tweaked its interest rate and peg, thus affecting the price of the currency against euros. Brokers such as Alpari UK offered traders up to 500 to 1 leverage, a core reason behind the downfall according to market practitioners.