On January 15, 2015, the Swiss National Bank (SNB) caused a flash crash that lead to historic dysfunction never seen before in the FX markets when it announced that it was completely (not gradually) removing the 1.2000 self-imposed floor on the EUR/CHF exchange rate. FXCM has compiled data points which demonstrate the unprecedented and extreme dysfunction of the FX market on January 15th. For the full recording and presentation please click here. * January 15 Was A Market Flash Crash - The Institutional FX Market Failed And Did Not Function: No Liquidity - There was almost no available liquidity for approximately 40 minutes Dramatically Low Pricing - External ECN prices went as low as 0.2000 and 0.5000 Extreme Spreads - The average spreads of EUR/CHF were more than 2000-3000 pips Extreme Range - The average range of EUR/CHF was 6000 pips. * The majority of FXCM liquidity providers had stopped quoting prices during this time. Had FXCM's circuit breaks not engaged, the weighted average price of the same orders would have been much lower than the execution price of 1.05, at 0.9760. * The January 15 flash crash saw the EUR/CHF drop 40% in seconds whereas the 2010 flash crash in the equities market saw about 9% drop in the Dow Jones Industrial Average over the course of a few minutes. click to enlarge * The market data show that the losses on January 15 were not the result of FXCM technology or FXCM margin requirements, but rather due to the extreme market dysfunction resulting from the SNB's irresponsible and unforeseen announcement to completely remove the 1.2000 EUR/CHF floor. * In light of the reckless actions of the SNB, FXCM has since ceased offering any currencies which carry significant risk due to potential manipulation by their respective governments either by a floor, ceiling, peg, or band.
thanks Jason I am very pleased FXCM have managed to stay trading and plan to deposit an extra $20,000 to my account over the next few months. I opened my first account with FXCM in 2003 - and had a few issues at that time- but every year the quality of executions improved and the spread shrunk. Service is always good- especially on phone.
Interesting idea to remove those currencies with caps, floors, etc., however is there truly any way FXCM can protect itself against outsized moves in the remaining currencies? Buying otm options? Swaps with banks? Truly curious..
They've lowered Margin to 100:1 which will help them ( lowered mine to 50:1 just incase myself ). Wasn't affected so no issues here either way Short of a few nukes going off in major cities odds on happening again are low. Not had an issue with FXCM been with them for 10years aswell, hope they survive this issue long term.
Turveyd makes an interesting point. This was the largest move of a major currency since currencies started floating in 1971. The EUR/CHF move was 44 standard deviation moves, while most risk management systems only contemplate 3-6 standard deviations. The market data show that the losses on January 15 were not the result of FXCM technology or FXCM margin requirements, but rather due to the extreme market dysfunction resulting from the SNB's irresponsible and unforeseen announcement to completely remove the 1.2000 EUR/CHF floor. There was almost no available liquidity for approximately 40 minutes in CHF pairs, because the largest banks in the world were blindsided and therefore unwilling to quote prices. In light of this reckless course of action taken by a major central bank, we believe we have taken the right steps by ceasing to offer certain pairs that carry significant risk due to potential manipulation by their respective governments and raising margin requirements on others.
Ostensibly though, if margin was 1:1, no client balances would have turned negative. I know that's taking it to the logical extreme.. Out of curiosity though, assuming we'll see another black swan at some point, what can FXCM do risk-wise on these types of move in, say, the euro? Suppose in Fantasy Land, Germany walks away from the euro.. then what? I'm more curious than anything, thanks.
FXCM writes off all negative balances anyway, still lose your account but atleast not bankruptes. IF I'd of known of the 1.20 floor I'd of been short on that before the news in the hope of that happening dratttss!! Without Margin, it simply would not be worth my time trading and for many years I wouldn't of been able to trade at all.
I understand they write off the accounts, but they still experienced a $220mm loss with their counterparties. I do wish FXCM well, seeing as they're probably the only STP US broker remaining who won't mess with client orders, but really am more curious than anything about how their risk model has changed. That's all.