Uncertain times call for bold moves. The economic turmoil triggered by COVID-19 caused significant volatility in financial markets such as Forex, futures, and stocks in the last month.
COVID-19 related instability has driven currencies such as the euro or dollar, stocks such as Boeing and Tesla, and metals such as silver and palladium into a roller coaster of highs and lows.
In that context, major trading platforms have agreed to take steps to minimize uncertainty. They have adjusted the leverage and margin conditions for trade in some securities.
Dukascopy, Admiral Stocks, Oanda, and IG have taken action this week. Before, Forex.com and Saxo Bank, among others, had made their moves.
The Love of Volatility in COVID-19 Times
Virus-related instability has been troubling over the last few weeks. Circuit breakers and caps have been activated many times in the stock markets. 3-ish-percent declines or weekly rallies have occurred in Forex pairs such as EUR / USD, USD / JPY, and indices such as DXY.
In metals, for example, gold has increased weekly and decreased by about 8 percent. Palladium plummeted nearly 30 percent in the week of March 9 and jumped 38 percent two weeks later.
Contextually, Chief Investment Officer and Business Development of the Wealth Enhancement Company, Jim Cahn, pointed out that “anticipation of what is coming” has driven uncertainty to levels not seen since the great recession.
As a follow-up, Jim Glassman, Chief Economics Officer of Commercial Banking at JPMorgan, said in a note that the virus-related uncertainty is “worrying.” However, rapid corrections help buffer supply shocks, and investors value solid future earnings.
The risk aversion factor is the confusion as to how much COVID-19 will affect economies; however, according to Glassman, “overall output is likely to remain stable.”
Now, let ‘s talk about the actions taken by market participants.
Admiral Markets Adjust Margin Criteria
London-based broker Admiral Markets lowered the overall potential leverage for specialist clients on four CFD-related crude oil derivatives, including WTI Spot, WTI Futures, Brent Spot, and Brent Futures.
In these positions, the leverage would be 1:50 for notional position values of up to EUR 500,000 or equivalent. For positions with a valuation of more than EUR 500,000 or equivalent, the leverage would be 1:10.
Ducascopy COVID-19 Leverage Reduction
Swiss trading platform Dukascopy lowered the leverage for commodities, indices, and precious metals to 1:30. No modifications to any other financial properties.
IG’s Margin Changes
UK-based investment company IG raised the minimum margin rates for new positions over the weekend. However, ‘no effect on retailers or markets where minimums are already higher,’ and no adjustments will be made to current positions.
- Indices at 5 percent at 16:00 GMT
- FX / Gold to 3% at 16:00 GMT
- Oil (energy) at 15 percent at 16:00 GMT
According to the broker, the margin rates returned to the minimum prices of 1% Indices / FX and 5% Oil on Sunday. As the adjustments will depend on market conditions, they can be applied next weekend.
Oanda Japan ‘s Three Currency Pair Margins
On 13 April, Oanda Japan will change the margin rates for particular pairs, including AUD / SGD, AUD / CAD, and CAD / JPY, from standard 2% to the new 3%.
Previously, Oanda changed margins for AUD / CHF, AUD / JPY, AUD / USD, EUR / AUD, EUR / NOK, NZD / CHF, NZD / JPY, NZD / USD, and USD / NOK on 30 March.
Previous margin and leverage from other trading sites
Previously, on March 22, Forex.com changed the effective margins to all MXN crosses to 10%, and all NOK pairs to 7%. Margins in 19 other currencies, including AUD / CHF, CAD / JPY, GBP / JPY, and NZD / JPY, were also modified on 23 March, varying from 2% to 3%.
The Saxo Bank Japanese subsidiary adjusted the margins for some stocks and single-stock CFDs at midnight on 14 March.