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Screenshot of a breaking news alert e-mail from Q2 2017
LeapRate Exclusive… The market activity and volatility across all financial instruments the past few days is not unprecedented, but it certainly has been challenging from a risk management perspective for retail forex brokers.
Especially in the shadow of what happened to the industry on January 15 when the Swiss Franc spiked in value by 20%, sending shockwaves through the sector and forcing brokers to re-look at how they go about managing their book and handling volatile situations.
We’re pleased to have the opportunity to get the perspective of Michael Davies of Sucden Financial, a leading liquidity provider to Forex brokers, as to what has indeed happened the past few days and how brokers have handled things.
LeapRate: Michael – thanks for joining us today during what must be a very busy time for Sucden. It is an understatement to say that the market is volatile right now. Huge daily swings, huge intraday downs and ups and back down. How did the past few days go at Sucden? Were you seeing much higher volumes from your clients?
Sucden: Sucden Financial is a liquidity provider to a great number of brokers and as such we feel we can gain a fairly good representative insight to the FX trading activity for these types of firms. The increase in volatility, as indicated by the spike in the CVIX back to levels of late June / early July when the market faced uncertainty from Grexit fear, has led to a surge in volumes. This has got to be good news for STP brokers, who are benefiting in particular from what would normally be a sleepy summer quiet period.
LeapRate: How was Monday’s action different from January 15’s ‘Black Thursday’ action after the surprise Swiss Franc spike from your perspective? Do you operate any differently as a result of January 15? Were there any risk management lessons you believe the Forex brokers took from January 15 which were applied in a trading market like this?
Sucden: Yesterday’s events were nowhere near the magnitude of January 15th, both in terms of market volatility and disruption. On January 15th post the SNB announcement banks stopped quoting for at least half an hour in certain pairs, whilst yesterday we only saw a few minor currencies like EURNZD disappear for up to a minute on some bank platforms.
Most brokers would have fared much better yesterday as the really big moves were in less traded currencies, although we did see some sizable moves in majors like USDJPY, which would have resulted in a few brokers being on call. Sucden Financial continues to require clients to post more margin since the SNB event and yesterday’s large moves vindicates the prudence of that policy.
LeapRate: What message are you giving your clients in this market?
Sucden: Now is not the time to be aggressive and compete on margins. Its a hard message to deliver to leverage hungry clients, but clients have got to start considering sound risk management principles over factors like cost when selecting their broker.
LeapRate: We reported earlier on some technical problems US online brokers experienced on Monday resulting from the surge in volumes. Did you see any of that among your Retail Forex Broker clients?
Sucden: No we are not aware of any problems, our clients seem to have weathered that storm just fine.