Volatility in exchange rates for several currencies has resulted in a top foreign exchange broker ending trades in multiple currencies
The Swiss National Bank’s move to remove the cap on the franc’s value last month has had devastating impacts on global currency markets, and the fallout continues. FXCM has reportedly lost millions of dollars as a result of that move and now is seeking protection from extreme volatility in many of the world’s other currencies.
Swiss franc loses FXCM millions
Chiara Albanese of The Wall Street Journal, citing an unnamed source familiar with the plans, reports that later this week FXCM will stop trading in several currencies. The foreign exchange broker is said to be trying to avoid any more volatility that could occur as a result of governments intervening in the currency markets.
The Odey Special Situations Fund was down 0.27% for April, compared to its benchmark, the MSCI World USD Index, which was up 4.65%. For the first four months of the year, the fund is up 8.4%, while its benchmark returned 9.8%. Q1 2021 hedge fund letters, conferences and more The Odey Special Situations Fund is Read More
When the Swiss National Bank decided to stop capping the value of the franc, it caused an approximately 30% move in the exchange rate for the franc. As a result, FXCM lost millions of dollars and was in danger of folding. The firm reportedly took out a loan for $300 million from Leucadia National Corp., the parent company of Jefferies Group, in order to stay afloat.
FXCM was dealing with approximately $225 million from retail clients that were lost big on the franc. The collateral those clients had put up to guarantee their bets weren’t enough to take care of the unprecedented one-day move in the franc’s exchange rate.
FXCM adjusts to foreign exchange market
Drew Niv, CEO of FXCM, told The Wall Street Journal that the foreign exchange industry is looking at the possibility of something similar happening in other currencies. In particularly, experts are considering “the increased geopolitical risks in Southern and Eastern Europe,” according to Niv.
The foreign exchange broker will reportedly halt trading in all but major currencies and the Turkish lira, the Chinese renminbi and the South African rand. Additionally, the firm is also said to be planning to raise the margins its clients will be required to pay to be able to trade in the currencies.
Other brokers also adjust
FXCM isn’t the only currency exchange broker that is adjusting its policies in the wake of the Swiss National Bank’s decision. Citigroup’s prime brokerage arm is also upping its clearing and settling prices for some currency pairs by approximately 25%, according to unnamed sources cited by The Wall Street Journal.
Citigroup lost approximately $150 million after the Swiss franc skyrocketed in value. The Journal also reports that other brokers and banks are considering increasing their prices for prime brokerage services.
As of now, their biggest concern is the Danish krone, as Denmark’s central bank has had to cut rates multiple times in the last few weeks and also stop issuing government bonds. The central bank is trying to slow down the inflows into the krone and keep the peg against the euro in place.