Currency volatility hits brokers and banks

FXCM – one of the world’s largest currency brokers - had its shares suspended today following significant losses resulting from an announcement from the Swiss National Bank.

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FXCM – one of the world’s largest currency brokers – had its shares suspended today following significant losses resulting from an announcement from the Swiss National Bank.

On Thursday the SNB announced it was to stop capping the Swiss Franc against the Euro – a policy it had held in place for three years.

US-listed FXCM becomes the latest company to be affected by the volatility, which has played havoc with risk management systems and led to huge losses for a variety of brokers and investment banks.

A spokesman for FXCM in the UK said no further comment was available at the time of writing apart from the statement released on the company’s website on Thursday.

Investment banks have also been hit hard by the announcement. The Wall Street Journal reported that Deutsche Bank lost $150million from market movements in the wake of the Swiss National Bank’s decision.

Earlier today, currency broker Alpari filed for insolvency after it stated that the “majority” of its customers had sustained losses from the subsequent volatility.

David Cooney, the former global head of currency options at BarCap and chief executive officer at Mahi FX told The TRADE, that the news puts the spotlight firmly back on risk management.

He explained: “It exposes the danger, the tail risk of running these big B books which had become common. The number of anecdotes of the risks that some of the retail brokers were running was terrifying.

“For the people who remain, they are going to need much more capable risk management solutions.”

The software chosen by some brokers affected has been questioned by industry figures who claim they never have had a true picture of their real-time risk because their software choices meant risk reports were up to an hour behind when markets were open.

Some of those hardest hit were also offering guaranteed stop losses, meaning that customers were able to specify a price at which their trade would be closed out, even if the market had moved beyond that price at execution.

 

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