Dukascopy Bank, a Swiss forex bank and marketplace, said on Tuesday it has decided to reduce the maximum leverage rate on the USD/CNH currency pair to 10:1. The change will come into effect as of 15 January 2016 for accounts with open USD/CNH positions.
For all accounts without open positions in USD/CNH, the lower maximum leverage has been applied on 12 January 2016.
The leverage cut is in response to the high volatility and low liquidity on USD/CNH, the bank said. The change is required since client accounts are at risk of negative equity as a result of the increased risk of price gaps.
The USD/CNH currency pair has been under presser and swaps in it have seen a dramatic price shift from less than 100 pips last week to above 1,000 pips as of Tuesday.
The USD hit a five-year high of 6.7585 against the CNH on 7 January 2016.
China has the second largest economy after the US and is a leading world exporter. However, in 2015 the country faced slowing growth, while its debt has reached an enormous amount. Stock markets have experienced significant price drops in the past couple of weeks, causing markets to close preliminary. Some experts compare the situation in China to that in the US prior to the crisis in 2008.
China’s weakening economy, its volatile markets and dropping prices have resulted in depreciation of the CNH. The country’s government faces accusations that it has manipulated its currency by devaluating it, which holds a potential risk for a currency war in the Asian region.
Dukascopy Bank offers direct access to the Swiss Foreign Exchange Marketplace (SWFX), which provides access to ECN spot forex liquidity available for banks, hedge funds, other institutions and investors. The company offers trading of forex, bullion, contracts for difference (CFDs) and binary options.
It is regulated by the Swiss Financial Market Supervisory Authority (FINMA) both as a bank and a securities dealer. It has several subsidiaries – Latvia-based brokerage Dukascopy Europe IBS and e-payments company Dukascopy Payments, as well as Tokyo-based broker Dukascopy Japan K.K.
Dukascopy Bank is headquartered in Switzerland’s Geneva and has offices in Zurich, Riga, Kiev, Moscow, Kuala Lumpur and Hong Kong.