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2 FX Brokers Suffer "Significant Losses" After SNB Surprise, "In Breach Of Regulatory
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2 FX Brokers Suffer "Significant Losses" After SNB Surprise, "In Breach Of Regulatory

  #51 (permalink)
Market Wizard
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Regulatory differences


skoa View Post
So if I understand this correctly, Saxo is in deep trouble as well: Wie ernst steht es um Saxo? - Inside Paradeplatz (link is in German)

Just like always, the devil is in the details ...
That's why the quote
"In England, den USA, Neuseeland und Hongkong sind letzte Woche mehrere typische Retail-Devisenhäuser mit ähnlichem Geschäftsmodell wie die Saxo untergegangen, wie der Tages-Anzeiger zusammenfasst."
is somewhere between imprecise and wrong.

There are substantial regulatory differences between banks, futures brokers, FX retail brokers and FX bucket shops.
(So you can assume that the bank / its creditors will have lots of time to collect their customer's deb(i)t.)

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  #52 (permalink)
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Another Bailout: FXCM To Forgive 90% Of Its Mostly Foreign "Negative Balance" Customers | Zero Hedge

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  #53 (permalink)
Shakes
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50:1 leverage US citizens



Fat Tails View Post
The problem here is leverage. FX brokers are competing against each others for customers and allowing for leverage of up to 1:500, see list here

https://www.100forexbrokers.com/high-leverage-brokers

This leverage is ridiculous. Let us assume that a majority of the customers were short the Swiss Franc and that the broker took the opposite position long the Swiss Franc. The broker would further enter a short position with banks to reduce exposure. After the sudden move of 2,500 pips many customers could not meet the requirements and their accounts would be liquidated. The broker is left with a net short position from the hedging which was done to neutralize customers positions.

The hedging was necessary in case that the Swiss Franc would drop, as it did during the last months when it was linked to the Euro. The point here is that the broker is exposed whether hedged or not. If the broker does not hedge, he loses big when the Swiss Franc drops. If he hedges he loses big when the Swiss Franc rises, because retail customers cannot meet their margin requirements.

As usual leverage is the problem. US citizens are only allowed to use a maximum leverage of 1:50. This is good but not good enough, as it only covers losses from a 2% move of any currency. Not enough protection, if a central bank goes mad and triggers a currency move of 20%. I think that the behaviour of the Swiss Central Bank was irresponsible.

okay, so all brokerages that allow an excess of 50:1 are scams or are breaking the law? For US residents that is..
Regards,
Brian

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  #54 (permalink)
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Magiklair View Post
okay, so all brokerages that allow an excess of 50:1 are scams or are breaking the law? For US residents that is..
Regards,
Brian

The word you're searching for is bucket shop

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