Who will be responsible for the brokers' losses?
January 2015 will be remembered by traders for a long time. It was a month that would absolutely turn the currency market industry upside down. One hour and one unexpected decision of a major financial and political player made both speculators and brokers nervous; the event instantly made some of the traders king of the world and rich, and others - a loser and bankrupt. There were enough of both to make even the the largest and most prominent brokers reported the most serious losses, multiples of 6-8 zeros in dollar equivalent.
"Black Thursday" for brokers
If you have been reading the text in surprise all this time and missed the trading day of January 15, let me remind you that due to the decision of the Swiss National Bank to de-linking the franc from the euro, all currency pairs with CHF experienced serious fluctuations - dozens of figures in a short time. Thus, UCDCHF lost at once 1800 pips or 18 figures, and EURCHF - 2284 pips (see Fig. 1). Everything happened so quickly that traders and companies did not have time to react correctly: market makers did not have time to hedge profitable positions and received losses from enriched speculators (although it was hardly a significant loss, because few people expected the NBS to make such decisions), brokers on the agency model had to repay the debt on unprofitable positions of their traders, who closed lower stopout (more than the available deposit). Millions of dollars in losses were announced by industry leaders - FXCM, Deutsche Bank, Citigroup, Saxo Bank and others. Some companies, including Alpari UK, declared insolvency and bankruptcy, which caused problems for smaller broker-partners, scandalous rumors about debt collection from clients, disputes about the appearance of excessive quotes in contrast to profitable positions and about the quality of execution at the time of the news release, as well as specific actions of companies to change margin requirements in the future.
Many brokers after what happened, preferred to report the losses to their clients, despite serious fears of losing some traders. We have seen amounts of -225 million dollars, -150 million dollars, -45 million, -10 million and -5, etc. We also saw pluses, in those cases, apparently, when the company was just lucky. However, all these were figures of companies loyal to clients, or those who were asked for disclosure by the regulator. Many brokers familiar to Russian traders preferred to keep silent, write that the company came out of the situation with a profit, or report losses without specific figures.
An electoral "lucky star"?
Let's say that it is very difficult to believe some companies' reports that for them the sharp growth of the franc passed without consequences. Firstly, because quite a few of them blocked deals with exactly those brokers and banks that admitted to losses. Secondly, it is difficult to imagine one common "lucky star" that en masse saved all unregulated companies from the drawdown. Third, alas, we can't verify either positive or negative statements of companies about the consequences of Black Thursday, and it's kind of inconvenient to take our word for it nowadays.
So what do we have to look forward to? In my opinion, nothing good will happen now. It should be understood that a large percentage of companies have suffered losses either from closing clients' trades in the negative zone, or from the fact that traders were standing in the right direction and trades were not covered, which leads to the need to pay a lot of profit out of their own pockets. Someone must have gotten it both ways for sure. Anyway, now brokers have a shortage that needs to be covered, which means that the terms of providing trading services must change.
Just within one week after "Black Thursday" the long-awaited ECB meeting took place, from which everyone was waiting for specifics on the QE program. Market movements promised to be impressive and allowed to earn those who know how to play the news. Widespread decline leverage brokers for transactions with euro pairs, explained by limitation of potential losses from sharp fluctuations of currency rates, made news speculators abandon their usual strategies. Those who already had deals with euros at the moment of change of margin requirements had to either close them (with a loss or existing profit) or add funds to have enough money to hold the position. An amount 5 or 10 times higher than the current deposit, so to say, is not affordable for everyone, and therefore....
You can't trade like you did before
Later, there was a statement from the interim managers of Alpari UK, which contained a clear hint that clients would be asked to cover the loss incurred by the company over and above the trader's trading deposit. This precedent was immediately reflected on the brokers we are familiar with in the form of changes in general trading conditions. If earlier we saw messages about high risks of trading on , now we see the risks have become greater than the amount invested!
I am sure that the continuation will follow. We are expecting complaints about deterioration in the quality of execution, delayed payments and tougher trading conditions. I must say that we are already seeing an increase in such messages on our forum. News "shoulder games" will puzzle traders for another month, absolutely for sure. Small companies are likely to start merging, reporting problems or closing down. Larger brokers will start introducing better trading conditions, offering more varied and stable service, taking risks but poaching clients. New companies will appear, opened with the money of those who were lucky enough to make a profit. And so on. I see such a local redistribution of the world.
In this situation, the main thing is not to be confused and not to miss the moment. Immediately after reading this article, reread again the service agreement with your broker, look at the license. Pay special attention to debt repayment in case of a stop-out triggering in the negative zone, and also evaluate, by which model your company operates. Keep a close eye on changes in execution and margin requirements during news releases. Look at reviews about your broker and emerging claims about payments. If the company does not even respond to them without trying to help traders, or responds to all of them at once with official letters, it is a bad sign....
I am not saying that now we will see widespread bankruptcies of brokers, most of them will find a way to stay afloat. However, you hardly want to cover brokers' losses at your own expense, so choose those companies for trading, which do not show clear signs of crisis and lack of funds. And follow the industry news on our website!