Financial services firms that are providing CFDs on Swiss Instruments were playing with the lack of liquidity during the middle of one of the biggest currency moves in the Swiss franc. The CHF’s immense drop affected its peers with shares and the benchmark SMI index faltering which resulted with CFD providers offering access to equity derivatives increased the margin requirements for traders.
Leading U.K. regulated broker-dealer, Ayondo, was one of the few providers that made amendments to its Swiss offerings. The firm also increased margin levels on major Swiss equities traded as CFDs to 10 %.
Margin alterations are very common at CFD providers, which today’s move resulted in a number of currency brokers that were changing margins on CHF currencies. FxPro was notified that it had suspended trading on all CHF crosses which is basically a similar practice at Exness that reported complete suspension of its orders.
Maltese broker, FXDD was able to send a note to its clients describing the after effects of such act. FXDD sent a note to its clients allegedly describing the after effects of such act indicating that the announcement from the Swiss National Bank that it had stopped its minimum exchange rate and the extraordinary volatility in CHF currency pairs that alter ensued. There has been a forceful order to fill client orders and positions in an extremely illiquid market.
Once the true market liquidity is established, all executed fills will be later revisited and at this time these orders will be revised and amended to a more accurate level. This may further result in a worse execution rate than the originally filled level.
Despite the markets taking a cascading tumble, some brokerages weathered the storm, U.K. CFD brokers ETX and CMC Markets maintained margins on Swiss stocks. The main 25 stocks normal margin is it the sweet spot of 5 % to 8 % depending on its market capitalisation and daily trading range.
The recent FX moves that highlighted the vulnerability of brokers, traders and the inter-connectivity between markets. For non-forex traders, a move during last week’s multitude is a sign that risk management is primarily essential in today’s market.