FXCM dropping trading in USD/HKD over peg fears

FXCM dropping trading in USD/HKD over peg fears

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US forex broker Forex Capital Markets, or FXCM (NYSE:FXCM), intends to terminate the offering of trading in the USD/HKD currency pair, finance news provider Finance Magnates reported on Wednesday, citing data from an e-mail update sent by the broker to its clients. No new positions will be opened in the USD/HKD pair and on 26 February, 2016, all open positions in the pair will be liquidated.

The broker has decided on the move since is expects disruption and high volatility of the USD/HKD pair in the upcoming weeks, which could result in customer losses.

When or whether trading in USD/HKD will be resumed has not been disclosed yet.

The Hong Kong dollar (HKD) is estimated to be the world’s 13th most traded currency. It has been pegged to the USD since 1983. Although its exchange rate to the USD is fixed, there are still slight deviations up and downward. Following is a visualization of the HKD/USD exchange movement in the past two years:

HKDHowever, recently there have been good grounds for fears that the peg may be abandoned, which could result in the currency exchange rates going off charts. The broker fears the scenario of the Swiss Franc – unpegging from last year might repeat.

In January 2015 Swiss central bank unpegged the Swiss frank (CHF) from the Euro (EUR). The markets saw exceptionally high volatility and low liquidity after the EUR/CHF pair collapsed. The US broker clients experienced heavy losses and generated negative equity balances of combined some $225 million. This put the broker in breach of the regulatory capital requirements.

As a result of the shakedown, the broker was forced to draw a $300 million cash credit from US-based lender Leucadia National Corp. in order to resume its operations normally. To finance part of its credit payments, the broker later sold its units FXCM Japan Securities (in April 2015) and FXCM Asia, aka FXCM Hong Kong (in September 2015), to its Japanese peer Rakuten Securities. The broker said at the time Rakuten Securities will continue to use the FXCM trading system for FXCM Hong Kong and FXCM Japan clients under a white label agreement.

FXCM offers forex, contracts for difference (CFDs), and spread betting services. It offers 40 currency pairs on the Trading Station and MetaTrader 4 (MT4) trading platforms.

The broker is a registered futures commission merchant (FCM) and a retail forex dealer (RFED) with the US Commodity Futures Trading Commission (CFTC). It has units registered and regulated with the relevant authorities in the US, the UK, Australia, and France.

Source: Finance Magnates

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