Retail trading providers reveal the extra steps taken to deal with the forecast surge in demand for dealing on GBP pairs in the wake of the EU referendum.
In short - the GBP market is mixed with volumes low and traders looking to lay low until Thursday night.
However, preperations are well underway for an expected surge in volatility once the results of the referendum start coming out.
Financial Spreads, the UK spread betting and CFD company, is expecting heavy trading volumes once the results of the EU referendum start being announced.
According to Adam Jepsen, the founder of Financial Spreads, they have taken a number of steps to prepare for the increased trading volumes.
However, heavy trading may not start until 01:00-02:00 on Friday 24 June.
"Our first step was to write to clients and warn them of the potentially extreme volatility,” says Jepsen. “We could see unprecedented levels of volatility. If so, that could increase the downside risk for investors and therefore make it more difficult for them to trade profitably.”
The trading provider has also increased server capacity ahead of the referendum.
As with any normal business Financial Spreads expect 95-99% of trades to go through the website and mobile apps.
Jepsen says the whole Dealing Support team in the office overnight on Thursday to help take calls/trades.
Having said that, it might be a quiet start to the evening for the team and so they could end up sitting around and twiddling their thumbs.
The voting ends at 22:00 Thursday 23 June and so it may not be until 01:00-02:00 when there is a clearer indication of the result.
Therefore we may not see a big increase in trading until 01:00-02:00.
However, we do note that private exit polls come out at 10:00 PM, once polling booths close.
Therefore, we would expect volatility to come about a lot sooner.
“As normal we are running more than 20 forex markets overnight including GBP/USD, EUR/GBP and EUR/USD,” says Jepsen.
Margins (the funds that clients need to deposit before they can trade) are increasing at 18:00 today, Wednesday 22 June.
All trading providers are raising margins with the world's biggest spread betting firm, IG, saying the starting margin rates on GBP currency pairs will increase to 6% from 3pm on Wednesday 22 June.
"If you have open positions during the affected period, please be aware that margin requirements to keep those positions open could rise. We recommend that you monitor positions carefully and maintain a sufficient account surplus throughout this period, particularly over weekends and before major announcements," say IG.
Financial Spreads say their clients will need to deposit 8-10 times as much as normal to trade.
“This is to help clients retain higher capital buffers on their accounts and so hopefully fewer trades will be closed because a volatile market has temporarily moved against a client's positions,” says Jepsen.
Likewise, it is hoped this will also means fewer margin calls for clients, i.e. fewer requests for clients to deposit more money to cover their trades during the volatile conditions.
Trading Volumes Forecast Notably Higher
Trading volumes are currently light, particularly in sterling based markets like GBP/USD and EUR/GBP.
“I hope this is because clients are aware of the potential risks and/or they have heeded our warnings,” says Jepsen.
As above, heavy trading may only start around 01:00-02:00, Friday 24 June.
Financial Spreasd expect these high trading volumes to continue throughout Friday 24 June until we close at 22:00.
During the weekend, the media will naturally dissect the results. Politicians will have their two pennies worth.
This could certainly give renewed impetus to the markets. We expect brisk trading to resume when we re-open at 22:00 on Sunday 26 June.
On Monday 27 June, volumes should remain heavy and hopefully the volatile aftershocks will get smaller.
Financial Spreads plan to return to normal margins at 17:00, Monday 27 June.