On the need for brokers to reduce trading leverage during news releases

The closer we got to Thursday's major news events, as well as Sunday's Greek issue and the next Fed meeting, the louder the arguments on our forum heated up the need for brokers to reduce trading leverage at such times.

Let me remind you that, despite the fact that the markets have long been aware of the data on the ECB's monetary policy decision, what about the QE program was talked about as a fact, and few people in the markets were expecting the collapse of Black Thursday, which is confirmed by the current movements, many Russian and foreign brokers preferred to hedge their bets and reduced margin requirements by 5-10 times.

Naturally, news traders, accustomed to low spreads, ideal execution conditions and quick good profits, are outraged by these restrictions, writing off everything to the unfair play of brokers and the desire not to let honest speculators earn money, hinting at "kitchen". In this regard, we asked the representatives of companies and market experts to ask whether these changes in the trading process would have occurred today if there had not been a of NBS events?

We are afraid of triggering stopouts in the negative zone

Stanislav Belinsky, Head of Technical Department at RDV Markets:  "Our company would not have gone for such changes, absolutely. Unfortunately, liquidity providers, or rather the banks that provide them with liquidity, have taken unprecedented actions - no quoting on news, changes in margin conditions, stop-out levels, widening spreads and, which overturns all the foundations, canceling positions. Fortunately, for the most part, we have not been affected much - clients are not even aware of it.

By and large, even these changes are nothing. Most of all, reducing margin conditions, we were afraid of triggering stopouts in the negative zone (i.e. when clients' accounts go into negative territory, as it happened last Thursday on strong movements). Such losses must be covered by the company, as neither clients nor providers are willing to participate in the repayment of these debts. Events of last Thursday took many brokers by surprise, so to protect ourselves and clients we decided to minimize this risk".

Некоторое время будут происходить «внеплановые» изменения торговых условий у всех Компаний

Denis Peganov, CEO of FXOpen: «События четверга, а вернее реакция рынка была неожиданной в плохом смысле этого слова. До этих событий понимание потенциальных рисков было на одном уровне, а по факту они оказались неверными. Без событий «чёрного четверга» скорее всего не было бы таких «драконовских» мер со стороны компаний. Во всём есть свои плюсы. Компании пересмотрят свою политику для большей сохранности капитала, Клиенты сделают выводы для снижения своих собственных рисков.

Думаю, что некоторое время будут происходить «внеплановые» изменения торговых условий у всех Компаний (по крайней мере, работающих по агентской модели), а как только ситуация «устаканится», всё вернётся в обычный режим, возможно, будет пересмотрена политика высоких плечей, по крайней мере, по определённым инструментам».

It's time to rethink shoulders across the industry!

Dmitri Rannev: "Black Thursday gave the industry a big scare and showed that under any scheme of work (both IM and agency) можно получить огромные непредсказуемые убытки. Теперь компании «дуют на воду». Кто-то увеличивает маржинальные требования, кто-то в раздумьях. Многие рыночные компании вынуждены идти на увеличение маржинальных требований по некоторым инструментам в частности потому, что поставщики ликвидности их увеличивают.

My opinion is that if leverage were reduced throughout the industry to at least 1:50, it would be good for traders and market companies, but I am sure that many companies (especially those working on the MM scheme) will not go for it, as high leverage on the one hand better attracts clients, especially beginners who want to get rich quickly, and on the other hand helps them to lose their money faster, which is also to the advantage of such companies. And since most of them are not regulated, I personally do not expect a massive reduction in leverage. For a short period of time due to the upcoming economic turmoil, perhaps, but not for a long time".

As we can see, the time has come for brokerage companies when the issue of survival is much more acute than the need to retain each client. Now the companies will be divided into two fronts: those willing to reinsure themselves by reducing trading leverage and get something out of it, and those willing to take permissible and not so permissible risks in the hope of luring clients. We are left with the right to choose a suitable trading partner based on the offer. This year, it seems that Internet trading is going to undergo significant changes....