Saxo Bank is increasing margin requirements on certain FX pairs, equity and fixed income products ahead of next month’s US election.
Saxo says that it will implement margin changes on products expected to be affected by the outcome of the election such as some single equity, index and fixed income CFDs, and certain FX pairs.
This includes taking most major FX pairs up to 2-3% with RUB and MXN going to 10% and 15%, respectively, while the minimum margin requirement on CFD indices will be 4% based on market volatility and liquidity leading up to and through the election.
Claus Nielsen, head of markets at Saxo Bank, comments: “We take a dynamic approach to our margin policy by ensuring that our requirements correctly reflect the market risks at any given time. As we enter the crucial few weeks ahead of the US election, and given the prominence of exposure to the US economy in our clients’ trading strategies, we want to ensure that our clients take advantage of trading opportunities with responsible leverage.
“The merits of our approach to market-moving events were most recently shown around the UK’s EU Referendum, where we also raised margins and supported clients with relevant information, enabling our clients, in aggregate, to emerge profitably despite the high volatility during and following the referendum result,” he said.
“It is important for us to emphasise that neither Saxo nor our clients benefit from overleveraging. Furthermore, we support a wide range of assets on our platform, and a multi-asset strategy is a good way to manage exposure and hedge risk around such geopolitical events as the US election,” Nielsen continues.
“Although the US election outcome might not create as much volatility as was created by the surprise outcome of the UK’s EU Referendum, there is no doubt that a surprise outcome of the election can create strong volatility, rapid price movements, potential for temporary illiquidity in certain stocks and indices, and to a lesser degree, in certain FX pairs.
“Analysts may be dismissing Trump’s chances, but the UK’s vote to leave the European Union has crystallised a growing anti-establishment mood that should not be underestimated, and there may be parallels in a protest vote for Trump. Additionally, the spotlight will soon turn towards Italy where Prime Minister Matteo Renzi takes his Italian Constitutional Referendum to the voters on December 4th, which might be even more important for markets than the US Presidential election.”