What to to with Brexit ahead and changes in margin requirements?

Beginner Questions
1

Hello,

as the Brexit event is approaching my broker (Hotforex) informed me that the margin requirements are changed with the upcoming market close on Friday.
I have several open positions (EUR/USD). As they are in drawdown I don’t want to close them out, what I would like to do instead is to fully hedge them and sit it out.

As I’m quite unsure what the margin changes mean to my account with the open positions I would like to ask for your advice. Any recommendations are appreciated.

Fow now leverage is 1:500 which will be changed to 1:50. I have 0.29 lots (BUY) and 0.30 lots (SELL) open. Does anyone have any advice how much should I fund in order to make sure the fully hedged positions will not be closed out due to the margin change?

Balance is 3500€, equity 1400€.

Thank you in advance, best regards
Thomas

2

youll need 10 times more of your margin requirement then you need now. so you must deposite 21000 to have and equity of 1400 again.

that means: if you truly used 1:500 leverage.

3

When your broker’s maximum allowable leverage is reduced from 500:1 to 50:1, it’s being divided by 10. This means that the required margin on each of your open positions (regardless of when it was opened) will be multiplied by 10.

[B]You should be able to find your current, total USED MARGIN directly from your trading platform. Just multiply that figure by 10, and you will have the total margin that will be required after the reduction in leverage.[/B]

That’s the direct answer to your question.

Here are the answers to the questions you didn’t ask.

Should you add funds to your account to cover the higher required margins? — NO.

Should you hedge your open positions, in an attempt to survive a [I]black swan[/I] event? — NO.

Should you hold your open positions during the “Brexit” referendum period? — NO.

My advice: close all of your open positions no later than 48 hours prior to the scheduled hike in required margin. A major increase in required margin will drive many traders out of the market in that final 48-hour period, and you have no way of predicting what that might do to prices. Unless you’re a blind-faith gambler, you have no reason to be in the currency market before, during, or shortly after the “Brexit” vote.

Nobody can predict the effect of this vote on prices. It might be a non-event, as far as the currency market is concerned. Or it might be something on the order of the [I]SNB black swan[/I] in January 2015. Most likely, it will be somewhere between those extremes. Why expose yourself to a risk you can’t possibly evaluate?

Finally, the fact that you don’t want to close out positions which are currently in drawdown, is your admission that [I]you can’t stand to be wrong.[/I] You want the market to come to its senses, and vindicate your judgement. That way lies disappointment and loss.

.

4

That surely doesn’t sound right? For me, that would be a reason to close them, not a reason [I][U]not[/U][/I] to close them. As the saying goes, the first loss is the smallest. If you can’t take small losses, eventually you’ll take huge losses. :o

5

yea cable is starting to go crazy. I mean random 100 pips countertrend spikes? Like wtf? That’s the worst daytraders nightmare. I don’t know maybe I should take a 2 weeks holiday. But goddammit I’ll miss out on so many trades and potential profits!

6

Clint you are sooo right , i have already sold most of my positions and my last day of trading will be 6/16 and will come back 6/27 . I am not going to get into a mine field. Good info.:35:

7

Thanks to all of you for your advice and thoughts!
My general attitude is to cut losses quite quickly if I trade short-term. But in this case I have several positions open in a long-term view, these are in drawdown, other baskets are hedging these on a mid-term/short-term basis. So the question is if I should quit the long-term positions, or if my account would survive with hedged positions and come back to business in about 2 weeks, even if there should be huge spikes for example.

I understand that the effect of the vote is not predictable :slight_smile: So your thoughts make me think if it’s really a good idea to try to survive or to quit the long-term plan. Not easy…

This night I got this response from my broker:

Please note that your free margin level with 1:400 leverage is 1626% (floating)
The new margin level with the 1:50 leverage will be 203%

For example purpose only if the leverage was changing now to 1:50 your free margin instead of 1626% it will go to 203% which is above of the margin call and the stop out level.

The way to calculate it is simple .
The leverage you have now is 1:400 and it will change to 1:50 that means it will decrease by 8 times.
The free margin level based on the current equity and the current leverage is 1626%, as long as the equity remain the same , the only thing you have to do is to divide the free margin level by 8 times , so the free margin level with 1:50 leverage will be 1626% / 8 = 203%

Regards

8

Why not to cut your risk exposure ahead of complete uncertainty rather than doubling risk with your hedge which doesn’t guarantee you a safe play in case of drained liquidity (like it was during CHF black swan). I advice newbie trader to steer clear from trading during this event as retail forex brokers can experience serious liquidity problems which can lead to improper close of Stop losses and Take profit.
I’m going to open long on Gold tomorrow but will close it right before the release of voting results.

9

I had noticed hotforex sent an email regarding improving margin requirements and more about this event, i hope if you are trading with them you have got it as clarification. One of my other brokers have also sent this email assuring their traders that they have made some necessary improvements to facilitate their clients during the said time.

10

thanks for sharing nice to know.

11

Safest thing to do is close the positions until next week, a small lost is better than cleaning out the acct. Needles to say if you have a very large account with plenty of free money , then your action would be different .

13

Brexit could be revoted, I think we should keep calm and wait for good news but I surely think the result could be changed and GBP could be restored.