In a move that virtually no one saw coming, the Swiss National Bank shook things up in a big way when they decided to remove the cap in the value of the Swiss Franc vs. the euro. As currency traders know, nothing happens in a vacuum, and a bunch of other currencies were effected in one way or another based on this news. The kind of changes that will come with the euro and other primary currencies remains to be seen, but the fallout of the Swiss Franc changes in the Forex world has been quick. The Swiss Franc move, which was made on Thursday, January 15, is being called “Black Thursday” in the foreign exchange industry.
The first major casualty of the Swiss Franc shocking move was Alpari UK, which had to shut its doors as of Friday, January 16. Alpari said in a statement that the stunning move by Switzerland caused exceptional volatility and an extreme lack of liquidity. Why did Alpari have to shut down? Essentially, when their clients were sustaining losses that exceeded their account equity, it was passed on to Alpari. This caused the company to become insolvent.
Alpari wasn’t alone though. FXCM is one of the biggest currency brokers in the business, and they got caught on the wrong side of this trade as well. FXCM is publicly traded, and shares traded at more than $14 per share last week before trading at a little more than $4 per share in the after hours session this weekend. The big news on Monday was FXCM’s announcement of a $300 million rescue package from Leucadia National Corporation. FXCM has said that its customers now owe the company $225 million because of the Swiss Franc news, and as a result, FXCM would likely have been in violation of capital requirements.
Forex Magnates has a terrific chart updating what kind of impact all of the different Forex Brokers have seen on their company based on this news. The final shoe likely hasn’t dropped here, so keep an eye on this constantly changing situation in the currency markets.