Margin hikes before elections and big events: what brokers do and why

[Fairman]

Margin hikes before elections and big events: what brokers do and why

Before some events, brokers raise margin requirements on the affected pairs. Elections, referendums, the odd central bank meeting where a big surprise is possible. You'll usually get an email a few days ahead saying margin on GBP pairs or whatever will go up from a certain time.

The reason is simple enough. If price gaps, the broker wants more collateral behind each position so accounts are less likely to go negative. Lower leverage means a smaller chance of the broker eating losses.

For scalpers it matters in a couple of ways. If you normally run close to your margin limit, a hike can mean existing positions suddenly use more margin, and your margin level drops. In a bad case that's enough to get near stop out without price moving. Pending orders that would've been fine can be rejected for not enough margin.

The other thing is the timing. The new requirement often kicks in well before the event and stays a while after. So it can affect trades you weren't planning to hold through anything.

I read those emails now, rather than archiving them on sight. And during those windows I just trade smaller, which is probably the right move anyway given what the event might do.

[Fairman]

Some brokers apply the higher margin to all open positions at the switch time, others only to new ones. That's a big difference if you already hold something. The email usually says which, though sometimes it's buried in the small print. If it doesn't, support should know. I'd also check whether it applies across related instruments, for example a UK election hike covering GBP crosses and UK index CFDs as well as GBPUSD. Read the whole email once. They're short, and the one paragraph that matters is usually near the bottom.

[Fairman]

Prop accounts are a bit different. The firm's broker might raise margin, but the firm's own rules about lot size and drawdown don't change, so the main effect is on how much you can open at once. If your normal size suddenly gets rejected, that's probably why. Some firms announce it, some don't. Opening the margin calculator in the platform before the event takes a minute and saves the surprise. Also, if you're near a daily drawdown limit and margin rises, a forced close at a bad price is the last thing you want. Smaller size into those weeks takes care of both issues at once.