NFA Hikes Margin Requirements for Turkish Lira and South African Rand

The US National Futures Association (NFA) said on Thursday it would temporarily require traders to put down additional margins when they enter into currency trades involving the Turkish lira and South African Rand.

The Chicago-based regulator, which is responsible for policing the US futures industry, is moving to restrict the amount of borrowed money, or Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term, to counter the massive recent devaluation of these exotic pairs.

The South African and also touched multi-year lows as concerns over the Turkish lira’s stability spread into investor sentiment on other emerging market currencies.

As per a notice published on NFA's website and requiring the immediate attention of its Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term Dealer Members, the move will require investors to put a “minimum security deposit” of 12% of their trades on the Turkish currency. The self-regulator also said traders would have to post 7% of their bets in the South African Rand.

The timing of the decision is relatively late, considering that since early August Turkey's currency saw wild moves, and the lira's collapse already spread to other emerging market currencies.

The NFA statement says its executive committee can temporarily boost security deposits—a move that limits leverage—during periods of “extraordinary market conditions.”

The National Futures Association self-regulates futures trading and is itself supervised by the US Commodity Futures Trading Commission (CFTC). Both watchdogs were given massive new responsibilities under the Dodd-Frank law, including setting requirements for how much borrowed money, or margin, the firms’ clients can use on currency trades.