20th January 2015
Francogeddon – The avalanche nobody expected!
The financial papers are full of Foreign Exchange (FX) news in the wake of the announcement by the Swiss National Bank (SNB) last Thursday (15 January) that resulted in a shock appreciation of the Swiss franc.
The SNB unexpectedly decided to end its three-year policy of fixing the value of the Swiss franc to the Euro at 1.20.
Francogeddon, the term created, and trending on social media sites, to describe the shock caused by the Swiss franc in currency markets last week, would have been enough to have even brought Frankenstein to life!
It wasn’t just currency traders who were hit. Casualties of this event included trading platforms like Excel Markets, FXCM and IG who all allow individuals to spread bet on the FX markets and who all made huge losses following the news. Alpari’s losses were so high that they have been forced into administration.
This highlights the perils of betting on the currency markets. You never own the currency and are gambling on whether the currency will move in either one direction or another. There’s big money to be made, and much more to be lost when rare events like this occur.
The major risk in FX trading is leverage. This is the ability to put down a small percentage of the overall exposure. This is a high risk strategy which can result in large gains as well as substantial losses.
The UK is less strict in regulating spread betting and doesn’t have a leverage limit. In the US, clients can leverage by a factor of 50/1 and in Japan it is less at 25/1. So Alpari, who had a leverage of 500/1, were effectively giving credit to speculators and did not have sufficient capital to fund the huge losses incurred.
Midpoint have experienced an influx of queries as to whether the incidents of last Thursday have had any impact on our business or our ability to service our customers. The answer is NO!
Midpoint is an international payments platform and not an FX trading business.
We therefore do not speculate on the FX markets and do not take a forward position or hedge against currencies. All transactions are executed at the spot midmarket rate.
Regardless of what is going on in the markets, your money is always safe with Midpoint. Any funds transferred for an international payment are always held in segregated client accounts at major banks. You do not take any counterparty risk when dealing with us.