The recent move on the Swiss franc caused by the Swiss National Bank’s unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity. This has resulted in the majority of clients sustaining losses which has exceeded their account equity. Where a client cannot cover this loss, it is passed on to us.  This has forced Alpari (UK) Limited to confirm today, 16/01/15, that it has entered into insolvency. Retail client funds continue to be segregated in accordance with FCA rules.

What Happened?

Yesterday the Swiss National Bank (SNB) shocked the market with its decision to remove its peg of 1.20 Swiss Francs per Euro, which had been in place for the past 3 years. On top of that the SNB lowered the benchmark deposit rate to negative 0.75%, effectively abandoning a currency floor for the CHF! This news was totally unexpected and almost instantly this happened:

The price dropped from 1.2000 to 0.8700 in less than three bars on the 5-minute chart.

That’s a 3,300 PIPS drop in the space of 15 minutes…. Let that thought sink in for a second….

If you are used to 5-digit mode, then this is 33,000 5-digit POINTS…

Let’s put that into perspective

Let’s say one trader had a 1.0 Lot BUY position on the EURCHF… Which with 1:200 leverage you can easily open even with $1,000 USD on your account. Then because of this movement that trader would have lost $33,000 CHF (approx. $28,700 USD).

Of course, you’d think that the StopLoss would have not let the trade accumulate such a massive loss. However, the problem is that when a volatile movement like this happens there is just not enough liquidity on the market for the StopLoss to be fulfilled.

A good illustration of this is the gap you see in the chart. The gap shows that there between 1.10 and 0.98 there simply were no available prices. At all.

How Alpari UK became Insolvent

What happens when a trader with a $1,000 balance loses $28,700 USD ?

Well… The broker has to cover the difference of $27,700 USD. And that’s just from one small trader. Add up all the losses from all investors of Alpari UK and……. the outcome is – Alpari UK Insolvent.

By the way, in case you were wondering… if some traders did make a profit (good for them!), the profits don’t go to Alpari, because they belong to those traders. It doesn’t work both ways 🙂

Makes you wonder how didn’t other brokers go bankrupt, doesn’t it? So far we know that a broker in NZ had to shut down today, and also FXCM reported massive losses of $225 million. Perhaps, these companies didn’t really manage their risks very well, and perhaps more announcements are to come.

Alpari sailing away

Recommendation

My recommendation is to stay out of the market for the rest of the day today. Especially if you are an Algorithmic trader. Also, it is best not to have any positions carrying over the weekend to Monday, because large gaps are quite likely in this situation.

On Monday trade with extreme caution. Markets tend to be jagged after things like this happen – the wound needs time to heal…

Oh yes! Nearly forgot. Remember that next Thursday 22nd Jan 2015 there is a European Central Bank release @ 1.30 pm GMT. I wouldn’t trade then either…

Subscribe if you like what you’ve read and get FREE instant access to my newsletter. You will love it. Promise 😉

If you want to read more on the subject of this article, go to swissinfo.ch

Happy Trading!

Kirill