LeapRate has learned that leading retail forex broker Saxo Bank has sent an email out to clients, asking its clients to prepare for what Saxo Bank calls ‘a high probability of margin requirement increases, as well as restricted availability of certain trade and order types’ leading up to next month’s Brexit vote in the UK.
Saxo Bank is encouraging clients not to over-leverage in their trading leading up to the June 23 Referendum. Any margin increases will require that clients ensure that their accounts have sufficient collateral to meet higher margin requirements at all times.
We’d note that Brexit polls continue to be fairly steady in showing a 9%-10% lead for the ‘Remain’ vote, while IG’s Brexit Referendum Barometer is currently showing an 81% chance that the UK will remain within the European Union. The Barometer reading is based on the political binary market IG has created for clients to trade on.
The Saxo Bank email sent to clients reads as follows:
Dear [Saxo Bank client],
On 23 June 2016, the United Kingdom EU Referendum (“Brexit” vote) will take place, creating potential for heightened market movements, including possibilities of significant price gaps and periods of illiquidity.
It is important that you are aware of the potential risk of this upcoming event, and that you are both prepared and positioned properly as the date approaches. We encourage you not to overleverage yourself, and to exercise care, diligence and discipline in your investment and trading.
In the period leading up to, during and shortly after this vote, Saxo Group will be closely monitoring market volatility, concentration and liquidity, among other things. There is a high probability of margin requirement increases, as well as restricted availability of certain trade and order types. We will do our best to inform you of any upcoming changes, but please be aware of margin requirements leading up to the referendum and ensure that your account has sufficient collateral to meet margin requirements at all times.
You should also be aware that events like the Brexit vote which result in heightened gap risk can potentially put your account on a margin call, so you should make sure that margin collateral is properly managed before and during periods of heightened volatility. Any reasonably appropriate changes in leverage or trading access should be temporary, however, and we expect a return to normal levels and operation depending on market conditions following the UK referendum.
Saxo Group suggests that you place relevant resting orders well in advance of the referendum, as availability of liquidity on the platform for new trade requests and orders can vary substantially during periods of market illiquidity. We would also like to stress that Stop Loss orders are not guaranteed to be filled at your order level: Stop orders are converted to Market orders once triggered, and dislocations in available liquidity could result in significant slippage on Stop orders.
Buying options (i.e. puts to protect long positions and calls to protect short positions) could be a hedging vehicle suitable for market uncertainty such as the Brexit vote since the Strike price is fixed in advance. In addition, you can find a number of trading strategies focused on managing risk and volatility on our special UK EU referendum page where you can also share news surrounding this significant event.