How the CHF chaos put retail FOREX brokers to the test

Under normal operating conditions, retail brokers should have no issues with their operations. Offshore brokers allow leverage up to 400:1, but the SNB event really put brokers in the spot light to see who can and cannot handle the unexpected.

Big name brokers such as FXCM sustained a $225 million negative balance putting them in regulatory capital risks. Excel Markets has shut down and Alpari UK is on the brink of insolvency. On the other hand, it looks like Gain Capital is the only broker to turn a profit in this chaos. Forex Crunch provided an overview of the status of 40 brokers. To save you the time of going through the list, here are just a few that I found could handle the market swings.

First of all, some brokers such as ActivTrades provides statements such as offsetting the risk earlier by somehow anticipating this event and took the necessary precautions. There is no telling if they were just lucky or actually prepared for situations like these. Instead, my focus is on brokers who were able to take a hit and still bounce back up.

The first is Oanda. They certainly have the excess capital to continue business as usual. They forgave client negative balances and honored all trade executions. I sense a possible transfer of new clients to Oanda as they clearly make the attempt to avoid possible conflict of interests. Once again, Oanda lives up to its reputation.

I bring up IC Markets again for their ability to proceed with business as usual. After suspending trading earlier on with the Ruble movement, they seem to have a much better liquidity pool raising margin requirements and suspending trading later on than other brokers. However, it seems clients still indeed suffer the consequences of the negative balance exposure.

While the FPA warns users about FxPro, this is another broker to have honored the negative balance protection. They are currently fully operational, which they say it is due to their “true agency model”. I would still exercise caution when dealing with them, but it is good to know they honor their terms and conditions. This is interesting nevertheless as FXCM made the switch to the agency model as well. Claiming to aggregate quotes from 15 liquidity providers, FXCM still demonstrates the typical transparency issue. They can claim they are an agency model just by passing a fraction of the total trade forward. There is no stopping them from partially market making and it looks it’s coming back to haunt them.


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