In a day that has become infamous with brokers and traders alike, January 15, 2015 saw the abrupt abandonment of the Swiss National Bank’s (SNB) currency peg, convulsing markets worldwide. When the Black Swan erupted with dramatic events unfolding one after the other, our focus was on breaking the fast pace news. Now, however, as the dust begins to settle and the new shape of the market takes form, a comprehensive in depth look is warranted.
Sleeping at the Wheel?
Whether it was the lulled false sense of security earlier in the week by the SNB, further championing its currency peg with the Swiss franc and the euro at 1.20, or an outright absence of risk management by brokers, it is clear there were some very definitive winners and losers.
In a stroke of utter chaos, traders found their screens go dark as CHF trading seemingly went down at a variety of brokers, culminating in the absence of orders being filled and the crumbling of accounts into negative territory that has still not seen a resolution. Furthermore, industry mainstays like FXCM and Alpari UK found themselves facing bailouts and in the latter instance, outright insolvency.
Navigating Through the Price Chop
On the back end of the Swiss black swan event, concerned traders and market participants got a ticket to stress test their strategies and brokers. Additionally, brokers finally received the opportunity to stress test their technology, liquidity providers and infrastructure.
The resulting mess will be discussed for many more months, while many legal cases could take years before resolution. The epic dismay across the industry from the event has once again exposed the short memory of financial industry participants when it comes to black swan events.
Winners and Losers
With the unfolding of events and the subsequent fallout, the industry has been forever changed with the memory of the CHF volatility burned into the psyche of traders and brokers worldwide.
(Photo: Wikimedia Commons)