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What a impact from the Swiss franc shock...

Swiss franc shock shuts some FX brokers; regulators move in

LONDON (Jan 17): The Swiss franc shock reverberated through currency trading firms around the world on Friday, wiping out many small-scale investors and the brokerages that cater to them and forcing regulators to take a closer look at the sector.

Some major banks also lost out when the Swiss National Bank scrapped its three-year-old cap on the franc against the euro without warning on Thursday, including Britain's Barclays, which lost "tens of millions" of dollars, an industry source said.

Retail broker Alpari UK filed for insolvency on Friday, while New York-listed FXCM Inc, one of the biggest platforms catering to online and retail currency traders, said it looked to be in breach of regulatory capital requirements after its clients suffered US$225 million of losses.

FXCM had to turn to Leucadia National Corp, the parent of investment bank Jefferies, to quickly broker a US$300 million loan.

In the past 15 years, retail currency trading has grown quickly, attracting individuals staking their own money with long trading hours, low transaction costs and the ability to take on huge risks for a relatively small sum.

Retail currency trade makes up nearly four percent of global daily spot turnover of nearly US$2 trillion, the latest survey from the Bank of International Settlements shows, having grown from almost nothing in the 1990s.

This small share means the sector poses limited risk to the financial system but retail brokers are much more vulnerable to big losses than banks.
...
http://www.theedgemarkets.com/sg/article...ators-move

A Hedge Fund With $830 Million In Assets Went Bust After The Swiss Franc Surge LINK

" lost almost all its money"
"clients' money?"

Any valuebuddies can give an insight why SNB lifted the cap? How is it related to the euro QE? If SNB didn't lift the cap, what will happen?

Previously, Switzerland had a cap that the franc could only be as high as 1.20 franc to the Euro. THis meant if market forces tried to push the swiss franc above this level (aka known as appreciating the franc against the euro), the Swiss will increase the supply of the franc to meet the increase in demand.

With the Euro embarking on QE, it meant naturally the euro will depreciate against all currencies and in turn SNB will have to massively sell more swiss franc to the market (by printing more francs etc) if it wanted to maintain the 1.20 cap. It will not be ideal as it may lead to high inflation in the nation and long term economic implication. So the Swiss decided to abandon this cap and move to floating rate

(18-01-2015, 09:05 AM)edragon Wrote: [ -> ]A Hedge Fund With $830 Million In Assets Went Bust After The Swiss Franc Surge LINK

" lost almost all its money"
"clients' money?"

No need to see also know the fund used lots of leverage
to magnify 'arbitrage' returns. Or write a lot of naked puts. Never read 'When Genuis Fails'

The Swiss has very low inflation rate. The primary reason is due to forex risk to the SNB itself which will hold a huge amount of foreign currency of low quality by continuing to hold on to the cap. By releasing it, you need more Euro to pay for it.

(18-01-2015, 12:05 PM)opmi Wrote: [ -> ]

(18-01-2015, 09:05 AM)edragon Wrote: [ -> ]A Hedge Fund With $830 Million In Assets Went Bust After The Swiss Franc Surge LINK

" lost almost all its money"
"clients' money?"

No need to see also know the fund used lots of leverage
to magnify 'arbitrage' returns. Or write a lot of naked puts. Never read 'When Genuis Fails'

I think this is the primary issue with hedge fund where fund manager can just walk away if they failed with lots of leverage since the reward will be huge for them if they succeed.
But for investors, is a high risk low/average reward scenario. Doesn't make sense to me at all.

The dangerous effects of leverage can be seen from this CHF debacle.

The same may also happen for real estate, though people probably can't imagine it occurring. Real estate is much more illiquid than currency, so sharp falls may be exacerbated.

(18-01-2015, 12:21 PM)Musicwhiz Wrote: [ -> ]The dangerous effects of leverage can be seen from this CHF debacle.

The same may also happen for real estate, though people probably can't imagine it occurring. Real estate is much more illiquid than currency, so sharp falls may be exacerbated.

Coz they are 30-40somethings who were still in school
when the AFC erupted. 初生牛犊不怕虎