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Exclusive: inside Story About Forex Brokers and the SNB Shock

24 Years ago | January 19, 2015 12/2/23, 12:00 AM

While I am not privy to any specific information, I have pieced together why some forex brokers were ravaged by the aftermath of the SNB decision to abandon the EURCHF floor while other forex brokers managed to make money on the unprecedented volatility. As you will see, it is ironic that those who hedged the risk to their trading books suffered while those who took on the risk by not hedging survived, even thrived. If the opposite price action had occurred (i.e. CHF gapped sharply lower) it would have seen the so-called bucket shops get ravaged but such was not the case. As I will show it was the more conservative brokers who got hit in what some liken to a meteor hitting the Earth, unexpected, devastating and almost impossible to prepare for.

Let's take two extreme examples, one where a broker hedges 100% of its book and another that does not hedge any of its risk. If I told you this before the SNB carnage began, you would say that one broker had little risk while the other had the greatest risk of blowing up. Yet, the opposite proved to be the case.

1) Broker hedges 100% of its risk


Customer account balance: $10,000

Trades with 10-15% leverage

  • Buys $100,000 equivalent of EURCHF at 1.2010

  • Broker buys $100,000 from liquidity provider to hedge the risk

  • Customer places stop at 1.1990

  • Market gaps lower on SNB and stop executed at 1.0209

  • Broker lifts its hedge against the 1.2010

  • Customer loses 100% of its equity and account goes into negative balance of 50% (-$5,000)  

  • Broker is on the hook for the negative account balance.

2) Broker does not hedge the risk on its book

  • Same trade but in this case the broker makes what the customer loses ($10,000). 

  • Broker stops out the trade at 1.0209.

  • Customer negative account balance ($5,000) is only on paper since the broker does not have a hedge to lift and thus does not have a realized loss.

While this may be an extreme case it does explain why brokers that hedged their book were hit with huge losses while those who did not hedge their trades came out okay. Note that it was not just EURCHF that gapped lower but any trade involving the CHF saw extreme volatility + gaps. In my example, I used what is considered low leverage. Multiply the negative account balance loss by an increase in leverage and you can see the carnage. In addition, the devastation was magnified by the fact that the SNB surprise came when the market was trading at full liquidity as opposed to over a weekend when open positions tend to get trimmed. Imagine a day trader scalping for 10 pips in USDCHF (even with a tight stop) from the long side seeing his/her account balance wiped out in a matter of minutes by the sudden gaps.

Now these were two extreme examples as there are brokers who hedge some of the risk. This explains why some brokers were ravaged by the unprecedented intra-day gaps + volatility, others suffered some significant but not fatal losses while others survived, even thrived. This was (hopefully) a once in a lifetime event where it was not a matter of leverage but the surprise, magnitude and speed of the move (EURCHF fell 30-40% in a matter of minutes before stabilizing and bouncing back above parity) that ravaged brokers looking to minimize risk while rewarding those who bet against their customers by not hedging risk. It also may explain why some brokers are willing to forgive negative balances since they are not actual losses itio the broker if the trades were not hedged. As noted above, they are only paper losses since there is no offsetting hedge to lift.

In all my many years of trading, I thought I had seen it all but nothing compares to the shockwave caused by the SNB shocker.  

Please contact me at with any information, insights, questions or requests for help having to do with the aftermath of the SNB fiasco. 


I would like to give credit to one broker,, which had the foresight to increase margins on CHF positions well before the SNB shocker. This left it less exposed as Glenn Stevens, CEO pointed out:

While we were surprised by the severity of the price action after the announcement, our assessment of the increased risk of trading EUR/CHF due to the SNB’s monetary policy led us to increase the minimum margin requirement on this pair to 5% in September 2014. This decision helped to provide extra protection to our clients trading EUR/CHF and mitigate exposure to negative client equity in the event of a major market event.


Jay Meisler, founder

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