Swiss National Bank Crisis

The Swiss National Bank (SNB) Crisis was an upheaval that shook the foreign exchange market back on January 15, 2015.

A crisis occurred when the central bank abruptly announced it would abandon its long-held currency peg with the euro, throwing the Swiss franc (CHF) into chaos.

This led to extreme volatility on the forex market, which placed enormous levels of stress on retail brokers.

Many experts classify this crisis as a Black Swan event, given its profound impact on currency markets and the retail brokerage industry.

During the SNB Crisis, the CHF quickly rose by almost 30 percent in value against most major currencies, lasting for nearly 45 minutes as there was virtually no liquidity in the currency.

As such, this made it impossible for traders to exit trades or for most brokerages to reconcile their exposures.

Consequently, many stops were not honored and most traders saw their accounts totally wiped out.

Lessons from the Swiss National Bank Crisis

The crisis also led to enhanced losses in the absence of negative balance protections in place.

This had long been a particular vulnerability, which was laid bare at this time for retail traders, having resulted in massive losses.

In addition to traders, many retail brokers were the hardest hit. The most high-profile victim was FXCM, which had operated as one of the largest and most reputable brokers.

With FXCM at risk of bankruptcy, the group negotiated a bailout via a $300 million loan from the company Leucadia.

Several brokers lost millions, with the most notable victim being FXCM, one of the largest and most reputable Forex brokers in the world.

Since the SNB Crisis, the demand for negative balance protection has become a primary offering at retail brokers and an area of emphasis by clients.

Furthermore, there has also been a greater push for awareness of the levels of risk when trading currencies that are the object of a stated peg to another currency by its central bank.