As expected Saxo and other forex brokers are sending out notifications to customers advising that margins for forex trading will be increased over the US election.
The margin uplift ranges from 1% for major currencies like GBP and EUR to around 10%-15% for more volatility and less frequency traded contracts like the Mexican Peso, The MXN incidentally is trading near all time highs against the the USD.
Forex and spread betting brokers such as IG, Spreadex (Read our Spreadex Review…), ETX Capital and Core Spreads are generally becoming more risk averse when it comes to offering highly leveraged positions to clients over major events.
Two instances in recent years have seen unprecedented moves in the currency markets. Brexit has knocked Sterling and the CHF cap removal saw a huge drop.
Typically most forex traders look to make small turns on trades with very high leverage on platforms such as MT4. So a big move can wipe their account out. Especially if the move is sudden, which means that stops basically become ineffective due to slippage. Unless of course they are guaranteed stops, but they only really apply to smaller trades.
For forex and CFD brokers, large sudden moves are a disaster because (the good ones) tend to hedge most positions so will have to cover the losses of clients in negative equity until they pay up. Even if a client doesn’t end up owing money it means that their account will no longer be active, which is a loss of income for the brokers.
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Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.