FXCM provided revealing details of the chaotic market dynamics that ensued after the Swiss National Bank capitulated forex its currency floor for the Swiss franc versus the euro. FXCM describes an intense period where liquidity completely dried up and the company scrambled to save its clients as much money as possible. The irony now is that the Swiss franc has significantly weakened since the vacuum of liquidity motivated the market to panic and overshoot. As trading has calmed down on FXCM, Inc. FXCM the company has been hard at work compiling data and illustrating a crash to provide additional detail on exactly what happened in the foreign exchange market on January 15, That was the day the Swiss National Bank SNB capitulated on its Swiss franc NYSEARCA: FXF currency floor against the euro NYSEARCA: FXEa day FXCM has cleverly labeled a flash crash in the Swiss franc. The FXCM press release gives a tidy blow-by-blow, nearly second-by-second review of how liquidity dried up and caused all sorts of havoc in the wake of the SNB's surprise decision. FXCM summarizes the ensuing chaos with four bullets:. The market essentially broke down and market participants had extreme difficulty doing price discovery. A video presentation embedded on the main swiss provides additional detail on the timeline of events. My favorite quote comes from the very end emphasis mine:. Instead, it was analogous to exchange rate manipulations of developing nations. The SNB has of course faced down a lot of heat for its decision and the way it executed the decision. This description is one of swiss more scathing that I have seen. Of course, FXCM has a particular beef to pick with the SNB given how this flash crash decimated its business. I was half-expecting FXCM to announce somewhere in the video presentation that it would seek legal action against the SNB of course that will not happen as the SNB cannot be held liable for the risks others take with its currency. FXCM recommended two alternatives for the SNB in managing the currency better: Recent reserve data show just how much pressure was already building against forex SNB. From tototal foreign currency investments jumped from At the end ofthese investments had only increased to About half of that increased occurred in December, Of course the bulk of forex came from the purchase of euros. Some traders had started to smell blood. The SNB may not have really acted like a developing nation's central bank, but it definitely acted like it was under siege…. Throughout its presentation, FXCM repeats multiple examples of how liquidity dried up. The company might as well have inserted "…and did we tell you just how badly the market was functioning during the flash crash? None of these caused FXCM to go into the tank. FXCM explained that what made this time different was the complete disappearance of liquidity. FXCM runs what is called an FX Agency Execution or No Dealing Desk model. FXCM acts as a middleman passing along pricing and taking a single, flat fee on the trade. This model only works when institutions provide liquidity, and FXCM had buffered itself with up to 12 providers. They ALL went dark during the flash crash and when they did provide liquidity it was at extreme prices. Without the ability to execute stop loss triggers or close out accounts on margin call, some FXCM clients went into negative balances. FXCM had to make these losses whole with its liquidity providers. FXCM further explained that other brokers who survived nearly unscathed during the flash crash operate dealing desks where they take the other side of their clients' trades. Not only did FXCM play the hero martyr? FXCM noted that the lack of crash breakers in other parts of the system exacerbated the extreme dysfunction of the market. Forex fact, FXCM claimed that circuit breakers placed throughout the system would have prevented the entire market meltdown. Another reason why the SNB can absolve itself of blame: The current irony in all this drama is that, over the two months since the flash crash, the Swiss franc has gradually weakened consistently and constantly. UUP and the British pound NYSEARCA: FXBthe franc has swiss returned to trading levels before the flash crash. I feel fortunate that I stuck to my guns and recommended shorting the franc even after the SNB capitulation. The British pound completes a punch in the recovery against the Swiss franc. The euro has made much slower progress of course. Its recovery against the franc ended after a month and since then the euro and the franc crash been practically joined at the hip. Has the euro stabilized against crash franc for swiss Perhaps in the end there was a method to the madness of the SNB. Swiss the flash crash has reduced confidence in the Swiss franc and its management, making the currency incrementally less attractive than previously. The market's retreat from the franc is helping the cause. This is of course a short-term benefit that could hurt the SNB somewhere down the road. Moreover, this gradual readjustment to pre-crash levels also suggests that perhaps, just perhaps, there was a way to figure out how to wean the market off the currency floor without generating so much chaos and severe pain. If only the SNB had not itself panicked…. FXCM has a LONG way to go forex even getting close to a recovery. My last post on FXCM covered a revision of the SEC disclosures involving FXCM's rescue plan. I hope to make another update after earnings are reported. I remain constructive on FXCM shares at current levels. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation crash it other than from Seeking Alpha. The author has no business relationship with any company whose stock is mentioned in this article. Please be aware of the risks associated with these stocks. FXCM To The Swiss National Bank: You Managed The Swiss Franc Like A Developing Nation Mar. FXCM summarizes the ensuing chaos with four bullets: No Liquidity - There was almost no available liquidity for approximately 40 minutes Dramatically Low Pricing - External ECN prices went as low as 0. My favorite quote comes from the very end emphasis mine: Macro ViewForexAlternative Investing. Want to share your opinion on this article? Disagree with this article? To report a factual error in this article, click here. Duru and get email alerts.
FOREX-What could go wrong? Swiss National Bank flash crash
FOREX-What could go wrong? Swiss National Bank flash crash
He was wearing a helmet and proceeding through a green light when a car driven by a man with a suspended license failed to yield the right of way and struck him.
TC 2100 - Computer Architecture, Software, and Information Security.
He was wearing a helmet and proceeding through a green light when a car driven by a man with a suspended license failed to yield the right of way and struck him.
People find peace of mind through redeeming themselves, in other words, we do something that makes up for the cause of guilt.