Ruble plunge and increased volatility leads many FX brokers to reduce RUB leverage – LeapRate investigates

The sustained demand for ruble liquidity can be attributed in part to its high volatility, providing FX traders with opportunities to make substantial returns when pitting it against majors such as the US dollar or the Euro, whose values fluctuate much less.

Yesterday, LeapRate reported that the ruble plunged further against dollar on Monday, dropping to a new low below 60 to the dollar before recovering slightly, even as a rally in oil prices promised some relief for Russia’s faltering economy.

Combine this circumstance with the impending Russian FX bill which the Russian State Duma (lower parliament) is due to sign imminently having included leverage restrictions on many instruments to 1:50, and the result is that a number of FX brokerages which consider the Russian market to be of importance having reduced the leverage autonomously on ruble pairs.

These factors have rendered the ruble pairs a somewhat risky business for many FX firms and traders.

One such company which has engaged in this recently is Alpari, a firm whose understanding of the Russian currency trading ecosystem is extensive. Yesterday, Alpari company reduced the maximum leverage on pairs which include the ruble, with the move being specific to USD/RUB and EUR/RUB pairs. In Alpari’s case, this change which is effective today, applies to all new and existing positions with the aforementioned instruments.

Alpari’s criteria is that for positions with notional volume from 0 to $1.5 million, the leverage on RUB pairs is axed from 1:100 to 1:50. This translates into the margin rising from 1% to 2%, whereas for positions with notional volume from $1.5 million to $3 million, the leverage is axed from 1:50 to 1:25. The margin rises from the previous level of 2% to a new level of 4% and for positions with notional volume of more than $3 million, the leverage is axed from 1:25 to 1:10. The subsequent change in margin is from 4% to 10%.

In the advent of this measure, Alpari had suspended ruble trading temporarily to ensure customer interests were protected whilst reinstating it, however the company is searching for new liquidity providers for ruble pairs.

A further example is Swiss FX marketplace Dukascopy Bank SA, which stated yesterday that due to the high volatility and low liquidity on USD/RUB currency pair online trading is not available at the moment. Clients willing to close positions are invited to contact Dukascopy’s trading support desk. Dukascopy advises to its clients to be aware that there is no guarantee that necessary liquidity will be provided.

Due to the risk of significant price gaps which may cause negative equity on client accounts, Dukascopy Bank and Dukascopy Europe are forced to implement a maximum leverage for USDRUB exposures of 1:10 as of 17 December 2014 at 13:00 GMT. Clients trading USD/RUB are invited to estimate margin usage at the moment the maximum leverage on USD/RUB will be reduced and adjust their exposure accordingly if needed before leverage cut time. This can serve to protect customers against exposure and is a very prudent move by the company.

Russian FX brokerage RVD Markets today explained to LeapRate that whilst such measures are planned, the company has not yet altered its leverage which currently stands at up to 1:1000 on ruble pairs for clients with an account balance or equity of less than $5000, reducing to 1:50 for accounts with a balance or equity of over $100,000., however the firm stated that it will notify customers at the time that such a move takes place.

Paul Orford, VP Business Development at Cyprus based FX liquidity provider TopFX explained to LeapRate today that “At TopFX we have not suspended trading, this is just like a regular day for us.”

“As we have a very cosmopolitan client base, there has been an increased demand for this. Needless to say the spread has changed, but we over the past month the volumes of this pair has been increased considerably. We are still offering 100:1 leverage,” concluded Mr. Orford.

Victor Masalov, Director of Product Development at Russian FX brokerage EXNESS confirmed to LeapRate today when asked if the company had plans to reduce leverage on ruble pairs “Yes. Please keep an eye on our news section, where we will publish the press release. I am not sure when exactly though,” he stated.

Gabriel Weinstein, Product Manager at SunbirdFX explained to LeapRate “You see, Forex brokers may approach this matter in two ways: They can lower the leverage and explain the reason to it, or they can reduce the bonuses they give on this pair and they can increase their stop out levels (when the client is kicked out of the market). Either way is bad for marketing but is manageable.”

“Both ways reach the same result, reduced high volume trading in specific pairs,” continued Mr. Weinstein. “It can be ruble one day or gold on another. It all depends on what the dealing room says and how deep the pocket of the broker is. Some can handle the increase in risk by knowing the fundamental fact that most traders lose within 3 months time, but if it is a mid sized (or smaller) broker, then either they push the risk to STP (liquidity) or they are forced to reduce the leverage/reduce exposure to the risky pair,” he explained.

“The Ruble has become recently the “bitcoin” of the world currencies, and if the instability in Russia and its relations with the West will continue, you might see some Bitcoin-style behavior in the coming months.” concluded Mr. Weinstein.

Geopolitical aspects are indeed important with regard to the risks involved. On this basis, Jansen Khoo, Manager, Risk Management at Blackwell Global detailed to LeapRate today that “If the political situation does not improve, this spiral effect of low liquidity and high volatility will keep getting worse, resulting in a further reduction of participants, further exacerbating the situation.”

Russia’s financial markets ecosystem finds itself at a crossroads. In many respects, some of the most advanced technology has been employed at major venues such as Moscow Exchange in ensuring reliable, low latency connectivity to European, Far Eastern and North American markets, via point to point dedicated connections, new datacenter facilities and expansion of available exchange-traded instruments.

Conversely, the economy continues to falter, with vast interest rate rises and low ruble values casting a shadow over Russia’s interest in becoming established as a major FX trading region, exactly at a time when a full regulatory structure is all but complete, with only a final signature from the Duma’s lawmakers required to set it in place.

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