Foreign exchange losses rocket in wake of Swiss currency move

Foreign exchange brokers across the world reported escalating losses yesterday as the shockwaves from Switzerland’s decision to scrap its currency ceiling against the euro reverberated through the industry.

Brokers in New York, London, Europe and New Zealand issued a steady stream of warnings, with the UK's Alpari entering insolvency. In New York, investment bank Jefferies was exploring a rescue of FXCM after the New York-based currency broker announced it may be in breach of capital requirements.

Citigroup is the largest prime broker to FXCM, with potentially tens of millions of dollars of credit extended to the struggling company.

Overall, Citi has incurred a $150 million loss as a result of the Swiss franc's appreciation, on a par with losses at Deutsche Bank. Barclays had lost close to $50 million, traders said. All declined to comment.

Soaring franc

The brokers’ losses came as the franc soared as much as 39 per cent against the euro on Thursday following the Swiss National Bank’s shock decision to abandon a ceiling put in place in 2011.

The pressure on groups such as Alpari could leave thousands of retail investors who have flocked to currency trading in recent years facing massive uncertainty and the risk of heavy losses.

Raj (33), a London-based photographer and amateur commodities trader who has used Alpari since 2009, said he had £24,000 trapped in his account at the company.

“It was completely out of the blue, a total shock,” he said.

“I’ve never had any issues with them. I’ve been calling and I just keep getting their answerphone.”

Traders say hedge funds may also be nursing big losses. Some that borrowed francs to buy higher-yielding assets in other currencies now owe substantially more in US dollar or euro terms.

Retail forex brokers have seen rapid growth as improvements in technology and the emergence of instant news sites such as Twitter broadened access to the market. Some, such as Alpari and FXPro, have sponsored shirts of football teams. Many have focused on London.

But they have attracted criticism for offering investors vast levels of leverage on their bets, a multiple that allows customers to trade far in excess of the deposit they post. – (The Financial Times Limited 2015)