How One Tiny Broker Won While Many Big Brokers Went Bankrupt Trading Swiss Franc

It was shocking. Very few traders anticipated it. Many big brokers had no clue that it would happen when suddenly one day the Swiss National Bank unpegged the Swiss Franc from the EURO. In less than a minute Swiss Franc appreciated 41%. Alpari UK a big broker went belly up when it suffered hundreds of millions of dollar loss in one minute. FXCM the world’s largest broker suffered a $200+ million loss. Chief Technical Analyst at FXCM couldn’t anticipate what was coming.

While most brokers did not revise the price. Saxo Bank revised the price and forced it’s clients to bear all the loss. Many traders who have been trading with Saxo Bank were shocked to find that the price had been revised post facto after the trade has been executed and closed. Saxo Bank took shelter by saying that the market becoming highly illiquid just after the announcement by the SNB forcing it to revise the price of trade execution.

While the likes of Citigroup Inc. and Saxo Bank A/S got stung when Switzerland abruptly let the franc soar in mid-January, Jakub Maly says the brokerage he runs made enough money to start dreaming about expansion.

No one would confuse Maly’s private brokerage, X-Trade Brokers SA, with the Citis of the world. Based in Warsaw, X-Trade caters to individuals who want to play the foreign exchange market. It made the equivalent of $22 million in 2013 – – about what Citigroup made every 14 hours.

Small or not, Maly says his firm saw the Swiss shock coming and prepared for the worst. The week before, it doubled the amount of collateral its clients must put up against their trades.

“I can’t say luck wasn’t part of the game,” Maly, 33, said in an interview on March 23. But X-Trade also has a strong record in forecasting European exchange rates. Recently it was near the top of the class for predicting the Russian ruble, Hungarian forint and Turkish lira, according to Bloomberg Rankings.

The broker’s chief executive declined to say how much X-Trade made on the franc. But he says it was enough to get him thinking about acquisitions and joint ventures. His firm is now looking to expand into Latin America, Asia and possibly even Africa. Currently it has about 100,000 customer accounts, mostly in Poland.

So you can see the importance of risk management. Those brokers who had been lax in risk management suffered big losses. X-Trade used strong risk management when it asked the clients to double the amount of collateral.

1 Comment

  • Jonathan

    March 28, 2015

    Avatrade and markets.com had to revise the prices to also avoid being bankrupt.
    But I consider those as scams; manipulating prices, giving quotes and requotes etc. I hate market makers brokerage firms.

    January 15, 2015 will forever remain a historical date in forex market following the SNB shocker.
    Many brokers have gone bankrupt. Many that used to be good brokers before have resorted to scamming because they do not have enough money to process clients demanding for withdrawals.