Swiss Franc Surprises Investors
The Swiss National Bank’s decision to remove the currency cap on its franc has had major ripple effects around the world.
Saturday, January 17, 2015 - 00:00
Wall Street reacted with mixed results, as the Dow turned lower but the Nasdasq and S&P 500 both pared losses from earlier in the week.
In addition to the surprise move from the SNB, US consumer price data also showed a 0.4% decline in December. It was the most significant drop since the end of 2008 and came as the result of falling energy prices.
Swiss franc moves against currency brokers
Across the world, currency brokers have felt the sting of the suddenly uncapped Swiss franc, according to The Wall Street Journal. One large US broker had its equity dissolved, a UK retail broker declared insolvency and a New Zealand trading house took a turn for the worse while the franc surged.
“I think it was a fair way of dealing with it,” Steen Blaafalk, CFO at Saxo Bank, said of reexamining its clients’ franc trades. “The move was just so extreme. I’ve been in the market 30 years and have never seen anything like it. Clients that lost money can blame us, or they can blame themselves. We have always helped and guided them on their risk management of the Swiss franc and warned of the risk.”
As soon as the Swiss National Bank announced its decision, the Swiss franc fell from 1.2009 per euro to 1 almost immediately, leaving investors without any opportunity to trade in between. But the move didn’t stop there – the franc reached as low as 0.85 against the euro before a slight rebound.
For investors, such large, sudden moves can cause difficulties. Because currencies tend not to move more than 1% or 2% in a session, traders can borrow large sums from brokers. But when a currency falls as significantly as the franc recently did, investments can be wiped out.
Guard against surprise moves with Nadex
When investors miss on currency trades, they can risk losing big time. In the case of the Swiss franc, currency investors and brokers have been devastated. One way these folks could have hedged against their trades would have been with binary options through Nadex. These contracts have short-term expirations, limited risk and low collateral requirements, making them an ideal option for investors seeking to protect their positions.
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