“Brokers' operational systems must go beyond traditional risk management,” CFI Financial’s Global Head of Education and Research, George Khoury, told Finance Magnates amid the recent pager and walkie-talkie blasts in Lebanon that have created a new wave of tensions in the Middle East. He highlighted that “escalating geopolitical tensions contribute to uncertainty in financial markets, particularly in the forex and commodities markets.”
The Middle East is one of the fastest-growing regions for retail trading activities. The potential interest among Middle Eastern traders has led brokers to establish a presence in the region, mostly in Dubai. However, many brokers also maintain extensive operations in tense countries.
CFI is one of the few brokers which is even regulated locally in Lebanon. It also sponsored a sports team in the country. Apart from Lebanon, the broker has a presence in Jordan and UAE too in the region.
“It Is Crucial to Incorporate Advanced Technologies”
“Their infrastructure must be adapted to rapid and unexpected changes in the market,” Khoury continued, mentioning the operations of brokers.
He said it is crucial to incorporate advanced technologies such as machine learning, artificial intelligence, and data analysis. These tools allow brokers to develop mechanisms that anticipate market shifts. “By utilizing these technologies, brokers can offer innovative solutions to clients, enhancing relationships and reducing risks.”
Already a region fraught with uncertainty, the latest tensions in the Middle East started in October last year. Now, the consecutive blasts from Hezbollah-carried pagers and walkie-talkies have escalated the situation further. Such a scenario directly impacts brokers with extensive exposure in the region.
Warplanes fly low over Beirut as Hezbollah chief speaks and Israel carries out bombing raids in southern Lebanonhttps://t.co/HaOkRWd3AV
— BBC Breaking News (@BBCBreaking) September 19, 2024
Uncertainty could bring both direct and indirect impacts on brokers' operations.
“Directly, the uncertainty can cause a decline in trading volumes, as traders may hesitate to make significant moves amid fears of escalation,” said Cliff Ambrose, FRC, Founder and Wealth Manager at Apex Wealth. “Indirectly, brokers may face increased costs for compliance and security, and some may even reconsider their operational presence in the area.”
“Essential to Reduce the Risk”
In such a scenario, risk management becomes key for brokers.
“Risk management measures, such as monitoring leverage levels during periods of high volatility, are essential to reduce risk for brokers and clients,” said Mazen Salhab, Chief Market Strategist at BDSwiss MENA. High volatility can also make “it more challenging to execute orders at the desired prices, leading to increased spreads.”
Liquidity may also be an issue in stressed markets, as Salhab highlighted that “securing access to a diversified pool of liquidity providers helps ensure consistent access to the market, even when liquidity is limited.”
Sudden high volatility in markets directly impacts traders, influencing their trading strategies, as they often need to rebalance their positions.
“The rapidly changing conditions also require frequent interventions by market participants,” Khoury added. “As a result, the volatility and increasing activity come as an opportunity for brokers to capitalize on more frequent trading and traders’ need for information and tools. It is essential for brokers to highlight these changes to market participants, as volatility might lead to higher risks if not managed properly.”
Khoury and Salhab both emphasized that investors tend to prefer safe-haven assets “during periods of high volatility and uncertainty.”
Taiwan says it did not make Hezbollah pager parts https://t.co/JmYsEWELe4
— BBC News Technology (@BBCTech) September 20, 2024
The Hezbollah pager blast may also impact markets outside the Middle East, especially the semiconductor industry in Taiwan. Those blasted devices were reportedly supplied by a Taiwanese company but were routed to Lebanon via a European country.
“It is also worth paying attention to the microelectronics market and the situation around Taiwan, which is also under pressure,” said Julia Khandoshko, CEO of Mind Money. “Recent scandals related to accusations against manufacturers can negatively affect not only individual companies but also the entire industry.”
