Swiss Franc Soars – Currency Brokers Hurt – Get Broker Advice
SNB Scraps the Francs Peg to the Euro
The Swiss National Bank (SNB) lifted the minimum exchange rate of CHF 1.20 per EUR and it hit Brokers hard, real hard. When the likes of Alpari UK are destroyed in a matter of minutes, and FXCM US are left scrambling, you know that this was an extreme event. I can say that after trading for 10 years I haven’t seen anything close for a long time. Around 7 years ago the Euro dropped hard against the USD and the event on my price charts was similar but the effects were not as harsh. That event 7 years ago was just the start of a drop that lasted for a couple of months. It will be interesting to see where this current event leads the markets and I look forward taking part in these next moves.
Swiss Franc Casualties are Global
The result of yesterdays move has impacted Brokers from New York to London and continued its destructive path all the way to New Zealand. As if trading wasn’t difficult enough, even successful traders will have lost their money on this one. When Brokers go bankrupt they take your account money with them, effectively they steal from you. The real question is why? How are these Brokers so irresponsible that they wouldn’t have the necessary risk management in place? These are heavily regulated firms also, you would think that regulators would also care about how a Broker is managing its risk, and protecting clients funds! Oh, no, that’s right, that would require them caring about the little guy. Got it.
Need a New Broker with MT4?
If you need any help finding a Broker who can handle these kind of events, without going bankrupt and stealing all of your money, then I will list my recommendations just below. I won’t just list any old Broker here on my website, I have either used, use, or vetted any company I chose to list. With the exception of Alpari UK who I did list for the UK Spread Betters looking for an MT4 Broker, all of the other Brokers that I had already listed here at EFX have survived and released reports about business as usual. Alpari was a big shock to everyone.
MT4 Brokers With Deep Liquidity
- IC Markets – STP/ECN style MT4 Trading
- Pepperstone – STP/ECN style MT4 Trading
- FinFX – STP/ECN style MT4 Trading
- FxPro – STP/ECN style MT4 Trading
Hello Theo,
I read somewhere that the markets are a giant wealth-distribution venue; money flows from one trader’s pocket to another trader’s pocket. If a lot of traders are poorer (lost money from the trade not because of broker failure) as a result of the Swiss National Bank’s decision, then a lot of other traders now have a healthier bank balance; but was it skill or pure blind luck that gave them those profits? I would imagine that, given the pace of the move, protective stops for those long the EUR would have afforded little protection against the fall.
Interestingly, the Japanese character that most closely represents our word ‘risk’, translates as, “opportunity blowing on a dangerous wind.”
Cheers,
Pepe le Pip.
Hi Pepe,
I don’t think anyone could have predicted this magnitude of this move, may traders would have been short because that is what they believed, many would have been long because of opposing beliefs. Those who profited would never have expected the size of the profits and those who lost couldn’t have seen it coming. This was probably the most powerful move I have seen in my 10 years at this but I do remember something close 7 years ago, the difference back then was you could really see it coming, it was a clean weekly chart split double tap / ghost pattern, and there were no casualties.
Best,
Theo
Hi Pepe:
I have traded with the ElectroFX team for about 5 years now and have never seen anything like this before.
I had just exited a EUR/USD short for profit, when one of our traders in our live room asked why the spreads were so high? I saw the spread on the EUR/USD was at 15 (normally 0.6) and with no news pending, I knew something was up.
Any trader, who held a Swiss Franc position, was either extremely happy or catastrophically sad. Most traders/ banks/ brokers lost money. Here is why.
If you look at the chart of the EUR/CHF, it was basically a horizontal line for several years. However, if you drop down to the M15 level there is a fair amount of price action, but always above the 1.2 level. What traders, and I am sure institutions, were doing was playing the sure bet. Go long any time price approaches the 1.2 level because the SNB had mandated that they would buy Euros anytime the Franc weakened to the 1.2 level. So when the EU/CHF approached 1.2, placing a long order with a 30 pips stop had a high likelihood of winning ….unless they un-peg of course.
Further complicating things was the fact that the higher volume USD/CHF pair had been trading inverse of the EUR/USD . Because a massive amount of traders had short positions on the EUR/USD, many traders also had long positions on the USD/CHF. Most stop loss levels were set at no more than 1-2% of account values.
When the announcement hit, price gapped down 30%-40% depending on the currency pair. In this case, a stop loss does not help at 1-2% because the asking price jumped way below the stops. So a trader holding a 1.0 lot Uchf long position with a stop at 30 pips thought he was out roughly$300.
The reality was a loss of 3,000 pips or $30,000 dollars.
If the trader only had $10,000 in his account, now his balance is -$20,000. He owes money to his broker. And good luck collecting that if you are an Australian broker and your client lives in France. I commented in our live room a few minutes after it happened that many brokers were probably bust because of this event.
This is EXACTLY why I never hold a position over the weekend and why intraday trading with tight stops is the safest way to trade. However, in the case of the Swiss Franc, it was just blind luck if you avoided a hit.
Because of this event, I am certain some attempt at international currency trading regulation is on the way.
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Hello Theo / Rob,
Given the nature of the event, and that it was not normal or usual price behaviour, are there any lessons to be learnt?
I was thinking that, given the support was maintained by manipulation and we could never really know when it would be taken away (by the SNB), would it be better to use the level as a target for a short rather than a level against which to enter a long position?
Was complacency an issue? I mean if not for the SNB maintaining the level, would traders have continued to assume the level would always hold?
Cheers,
Pepe
Hi Pepe,
The level would have held for as long as the SNB wanted it to and traders would have continued to assume so with good reason. I don’t think trading around any officially stated protected levels is something that appeals to me but either way I don’t trade around red news events, if I was trading the CHF it wouldn’t have been then. This event re-confirms my no trading too close to red news rule and no one but the ones behind the scenes could have seen it coming.
Trying to draw a lesson from it brings me back to “don’t trust the officials”,
but since I don’t anyway and I only trade via technical analysis I won’t be doing anything different because of the event. If anything it also reconfirms that the way and speed I trade is the best and safest way to go, I was actually in a EURUSD short that morning and it was opened and closed before the SNB event. If I had held it I would have had a 1:500 Risk:Reward winner but it’s not healthy to think that way and rules are rules, consistency wins.
Theo