Swiss Franc massive jump 17-Jan-2015

Last Thursday 15-Jan, CHF has soared in the largest scale as soon as Swiss National Bank (SNB) revealed they abandon currency ceiling on CHF. It was big surprise as seen in the market though it had been known that SNB was one of the biggest buyers for Euro bond.


Who won? Who lost?
 This is general perspective. Obviously, anybody who has asset in CHF got benefit and anybody who has debt in CHF will face heavier repayment. Export companies will have less revenues in CHF. Import companies will have more revenues in CHF unless they cut goods price. Or they could cut the price, and it would push the economy into deflation.


FX brokers
 However, things are more complicated for market players. This CHF jumping laid FX brokers in financial difficulty as they cover customers' loss. Alpari UK had entered insolvency as customer's loss exceeded their balance on the account, other brokers are looking for financial aid.

(Reuters) - The Swiss National Bank's abrupt move on Thursday to abandon its cap on the Swiss franc led to massive losses, and at least one insolvency, among retail foreign exchange brokers and trading houses across the globe.

Alpari UK

Online foreign exchange Broker Alpari UK said on Friday it had entered into insolvency after clients sustained losses on the Swiss franc. It said volatility and lack of liquidity had "resulted in the majority of clients sustaining losses which exceeded their account equity".

(http://www.reuters.com/article/2015/01/17/us-swiss-franc-brokers-factbox-idUSKBN0KP1EQ20150117)

USDCHF last 3 months

FX brokers provide spread-betting with leverage on the customers' account. The customers could enjoy profit in bigger scale by smaller deposit. Downside, they could make loss on their deposit and the loss may exceed their deposit due to the leverage. However, most of regulated brokers exercise margin-call which force positions closed before exceeding break-even point to avoid negative balance.
Basically, FX brokers hedge customer's position. When the position is closed by margin-call, it has to be traded at break-even point. However, CHF has jumped massive scale in few seconds on last Thursday, and the brokers fail to close positions at break-even point. Customers who had short positions in CHF must have gotten huge loss from the jump, and some of them were forced into margin-call at far way from break-even point.

SSMI in CHF and USD last 3 months

Stock market
Stock price has gone down after SNB made the announcement, but it could said the market is not so gloomy despite the price down in large scale. Looking at the figure, it describes SSMI stock index for last 3 months.
You see SSMI in USD did not go down after CHF jumped while SSMI in CHF massively went down. It implies objective value of the stock index has not gone down in USD.
It will probably take more time that the impact is realized in the real economy rather than immediately.


By the end of this month, the market is expected highly volatile as uncertain losses from CHF trade could be revealed in big banks, ECB makes decision of additional QE and Greek election where Syriza currently has the largest support rate.