FX broker Argentex announced on Tuesday that its shares were being suspended due to concerns about its liquidity and financial position.
The company, which itself offers foreign exchange hedging and risk management tools, appears not to have properly hedged and managed its own exposure satisfactorily amid Trump-induced volatility.
Argentex said it had experienced increased margin calls in its FX forward and options books due to the rapid devaluation of the dollar. The company has attempted to increase the counterparty collateral it holds and is in talks with liquidity providers to bolster reserves.
Nonetheless, Argentex views its current position and ongoing market conditions as sufficient reason to halt trading in its shares.
Why is this good news for IG Markets and CMC Markets?
This isn’t an opportunity for IG and CMC to win new business from Argentex. They operate in different areas of the FX market. Argentex provides business services to companies seeking to hedge their overseas business activities, while IG and CMC primarily offer services to traders and investors seeking to profit from moves in FX, among other asset classes.
IG Group, CMC Markets, and other brokers will benefit from the severe volatility experienced in the wake of Donald Trump’s tariff announcements. The underlying causes of the stresses experienced by Argentex will play directly into the hands of IG and CMC.
Traders tend to attempt to capitalise on heightened volatility by placing more trades, generating higher income for FX and derivatives brokers.
One would expect IG Markets and CMC to announce some form of records when they report trading for the period that includes Trump’s tariffs.
Retail derivative brokers also benefit from more stringent risk management tools that aim to reduce the likelihood of retail traders blowing their accounts up and falling into a negative balance. This doesn’t make them immune to liquidity pressures, but they are much better placed to deal with an increase in volatility.
After a period of low volatility last year, the recent volatility that caused the problems for Argentex will be welcomed with open arms by IG and CMC.
Additionally, new traders often view volatility as an opportunity to start trading, which has historically led to a surge in new account openings among brokers.
IG Group and CMC Markets shares have recovered well from the sell-off, but the prospect of higher earnings is likely to support their shares going into their respective reports.