The UK’s referendum
decision to leave the European Union has led to wild swings in the valuation of
sterling, and caused significantly increased volatility in many other
But while analysts,
strategists and economists will spend the next few ...
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.
Bob Savage, CEO of CCTrack Solutions, talks to Profit & Loss deputy editor, Galen Stops, about why geopolitical unrest this year hasn’t translated into more FX volatility.
This year has been marked by a high degree of geopolitical unrest and uncertainty, with Britain voting to leave the European Union, Italian banks struggling ahead of an important referendum later this year, questions being raised about the future of Europe and a divisive US presidential election.
Meanwhile the war in Syria continues, ISIS has not been defeated, Russia is considered to be actively attempting to expand its sphere of influence and there is the suggestion that some long-time US allies in Asia – such as the Philippines – could drift closer in their relations to China in the coming years.
Isaac Lieberman, CEO of Aston Capital Management, talks to Profit & Loss deputy editor, Galen Stops, why it’s hard to find uncorrelated markets to trade right now.
“Volatility is very compressed right now because there’s a lot of central bank activity and markets are very highly correlated,” says Lieberman.
He adds that the FX market needs a “theme” that will cause it to break away from other markets, but that in the meantime “we’re certainly waiting for volatility to return”.
Lieberman says it’s become very hard to find uncorrelated markets, with equities, rates and FX all trading in unison and therefore dampening volatility. One reason for these correlations is the lack of interest differentials, but he also highlights central bank intervention as another factor that is causing this.
After the Bank for International Settlements (BIS) Triennial FX Survey revealed last year that the industry has shrunk in terms of notional volumes for the first time in 15 years, speakers at Forex Network London outlined the factors that could help this market get back to growth.
During the discussion the speakers on the panel outlined a number of issues that have constrained trading volumes over the past three years, including technology shortcomings, a lack of investment in some areas of the market, and regulatory challenges.
Against this background, the question was put to the panellists, how does the FX industry get back to the kind sustainable growth that it witnessed between 2001 and 2016?
Following the sterling flash crash last year there has been much industry debate about what the increasingly regularity and severity of these events means for FX market participants and whether anything can be done to prevent or mitigate their impact in the future.
According to Neil Crammond, risk manager for FX at Avem Capital, part of the reason why these flash events are occurring is simply that markets aren’t used to the levels of volatility that used to exist prior to the financial crisis and the implementation of quantitative easing by a number of central banks.
“I think that the problem with the modern FX market is that pre-2008 if you came in every day and someone said to you that “we’re going to have a 300 tick move in the cable every day”, you’d trade according to that,” he says.
Speaking at Profit & Loss’ Forex Network London, Paul Chappell, CIO of buy side firm C-View, explained how liquidity trends are being negatively impacted by the Fix scandal.
In a featured new segment introduced at Profit & Loss’ Forex Network London called BURSTS, Paul Chappell, CIO of buy side firm C-View, sought to explain liquidity trends in the FX market in the context of the recent scandals that have plagued the industry.
In this TED Talks-styled presentation, Chappell sought to address why there are, in his opinion, only a few genuine market makers left in the FX market that everyone else prices off, and why currency managers have seen their returns significantly reduced.
A more volatile trading environment is exposing a segment of businesses that are currently being under-served by FX service providers, claims Moises Michan, a managing partner at Tanridge Capital.
“I think that when you start looking into these higher volatility environments is when you start having treasurers and heads of family offices realising that they’re not FX experts, there’s a lot of mechanics a lot of input going into the FX market, and they do have exposures,” he says.
Michan says that Tanridge capital is focusing its efforts on providing FX asset management services for small to medium sized institutions that don’t meet the client requirements of the big banks.
My virtual mailbag tells me I shouldn’t but I will digress from the current hot topics of the aftermath of the Mark Johnson trial and the impending guidance on last look today by talking about CME’s launch of Bitcoin futures. Before I do, however, I feel I ought to repeat one observation from a piece I wrote earlier this week – isn’t it strange that the majority of people against changing the language on last look in Principle 17 provided their feedback anonymously?
I will leave that for you to ponder, because I want to look at the potential impact of CME’s launch of Bitcoin futures.
Bitcoin futures are one month old which means the first maturities are happening and while I can't think anyone would look at the futures for a ‘buy and hold’ strategy, the first month has been a somewhat sobering experience for many. There has, inevitably, been a lot of chatter about how volumes aren’t what they expected, although I can’t decipher whether this is genuine disappointment or just the crypto-bashers doing their thing, but either way, the modern day Green Shield Stamps haven't followed the script.
This week’s podcast sees Colin Lambert and Galen Stops discuss the latest lawsuit facing banks over their actions in FX markets, during which Lambert invokes the spirit of a film that he can’t remember the name of, by asking, “Could you ask me that question again Galen?”
Stops also has a series of questions relating to the Virtu-ITG tie up reported this week as our two podcasters discuss the evolution of the non-bank trading firm business model. Where do these firms expand? Lambert is fairly confident (is he ever not?) that it is not by buying other trading firms, but both men see opportunities away from trading.
They also discuss volatility in crypto markets and ask – at what stage does the institutional enthusiasm for crypto start to weaken?
This week’s podcast also highlights how Lambert giveth…and taketh away…as it is bookended by praise and ridicule for his colleague! Find out why by listening in to this week’s edition.
High drama in this week’s podcast as it is revealed that editor Galen Stops has been removed from duties…either that or he is in Bali on holiday. Thankfully, P&L’s editor-in-chief Julie Ros is on hand to step in as guest podcaster, and while this does mean regular Colin Lambert feels he has to be on his best behaviour (he fails of course), it does mean we can bring you a quick trip around the wild life of upstate New York!
The last week has seen the return of volatility to crypto markets, which has at least got Lambert excited (he never can resist a moving market), although Ros has a different take on what people should be talking about when it comes to these still relatively nascent markets.
Our podcasters look at potential use cases for the technology underpinning the crypto space, liken it to the e-FX boom that accompanied the launch of P&L, before moving on to discuss the changing attitude of customers to FX markets.
The randomisation that has become associated with In the FICC of It is maintained as well, with a closing question to Lambert that is definitely from left field!