When I open a position I’m comitting to a level of margin, but what prevents (if anything) a broker from then changing this margin at any time on opened positions? It seems that brokers can trigger margin calls at will if they wanted.
Specifically I’m thinking about the recent JPY volatility on 3 Jan 2019. The JPY jumped 4-7% that day against other majors. IG increased margins by 400% that day, which is not insignificant and could have easily triggered margin calls on open positions.
Yes they can vary margin affecting both pending and open positions without notice. See your own firm’s T&C.
Yelo.
The OP SEEMS to be talking about increasing MARGIN requirements as opposed to widening the spread. If it’s the former: the broker should and must inform clients BEFOREHAND. I’ve had this happen once or twice (the initial BREXIT vote being one such occasion) but was informed that margin requirements would increase via at least two emails and well prior to the referendum. Spreads widening: well it is what it is. That said: I’d have to say WITHIN REASON i.e. 400% sounds a bit harsh I’d say (and I’d be surprised given that this is apparently IG Markets we’re talking about here i.e. not your average bucket shop located in Donkey Sh1t City, Republica de Las Paranoias). (That will stay with me until I die Tom!!! LOL!!!).
Hi Dale - from my SB firm’s T&C’s (although I’m on SB I don’t see why a typical forex broker wouldn’t use similar conditions) -
3.2 - We may, at any time and in our sole discretion, increase or decrease the margin requirement in respect of you opening new Transactions and/or to maintaining your open Transactions. We will make reasonable efforts to notify you of any such change, but the relevant change will apply regardless of whether any such notice is given or received.
Note that they will only promise to try to notify the client, not to give advance notice. In fact, if a firm needs to change their margin requirements due to events, there won’t be any advance notice practicable.
Well. Maybe my words “should” and “must” are incorrect then. I know for sure I was informed though (by TWO brokers at the time i.e. SB in the UK and CFD in Bulgaria). But now that you mention this: could be that the notifications were applicable to NEWLY opened positions initiated on or after a certain date and not existing positions. For the sake of interest let me see if I can find those emails (they’re on a backup).
To add though and pertinent to the actual thread topic:
The answer is YES they can I guess (whether it be increasing margin requirements i.e. decreasing leverage OR widening the variable spread).
Although in just looking again at the above:
I’m pretty sure it would cause a veritable shitstorm should the increasing of margin requirements result in a margin call for the client. Sure worth some investigation.
But I just saw the last point in your post Tom:
The BREXIT example used was for sure a foreseeable event i.e. not simply a news data event that surprised type of thing. So advance notice was indeed practicable.
Yup, I was referring to margin requirements (not widening spreads). In the case of IG, they did not issue any notices when they increased margin requirements for JPY pairs in January. So I think people are less protected than they think because “flash crashes” do happen (JPY in 2019, TRY in 2018, CHF in 2015). If brokers are increasing their margins to any level they see fit during these events, it’s hard to know how much cushion is enough…
Still trying to find those emails. Will let you know. For sure it was just prior to 23 June 2016 as 23rd was my birthday and I just happened to be VERY short when the results came out so I remember it well i.e. closed out and stayed pissed for the next three days!!! LOL!!! Even bought two very expensive suits!!! LOL!!! Anyway. Not too difficult to find (just don’t label my backup drives too well so have to sort through them).
The firm will do whatever they have to to stay afloat. They will word their T&C so they can do these things. And they should. If they go bust, I might get my deposited funds back eventually but no winnings from running positions.
Well. At least I know that you and I will be alright anyway. London far away from Donkey Sh1t City!!! ROFLOL!!!
Any decent broker will inform traders beforehand of any changes in margin or spread widening for a period.
This is completely incorrect. Spreads change throughout the 24 hour period with no notice, either advanced or retrospective. Maximum spreads are not ever quoted. Margin may also change without any notice. these changes may or may not be triggered by timetabled events such as market closures or news announcements.
Anyone doubting the brokers’ powers need only check their T&C. If more evidence is required, log the spreads offered on a selection of instruments. BUT - do this on a LIVE account.