from when the Swiss hit the fan.
Barclays tens of millions
For anyone whose positons
were above 8X their balance
, it resulted in a complete loss for their account.
Many customers with larger leverage saw their accounts going negative.
For FXCM and other STP brokers or those like IG with large hedged franc positions,
the negative balances make it nearly impossible to mitigate their own losses
suffered on their CHF short positions with their bank counterparties.
Brokers are also suffering as banks have alerted customers
that pricing of some executed trades may be incorrect.
Two specific firms which have been cited as providing
poor execution by brokers are Barclays and UBS.
$225 million quoted by FXCM, the amount reveals one of the dangers of being a broker
; credit risk from clients losing more than their balances.
This problem has been reported to have caused several prime brokers
to suffer losses in 2014 due to ‘run away’ algos triggering losses.
Typically, retail brokers don’t require account holders
to cover debt related to negative balances and rely on their risk management
software to close client positions before they go negative.
In this extreme case, although FXCM is on the hook for $225 million to their liquidity
partners, collecting the funds from clients will be difficult
. What is not yet known is what percentage of the $225 million figure is from
institutional clients who may have the resources
to pay their debt from other accounts
they hold with other counterparties.
FXCM Inc (NYSE:FXCM) lost 33.5% in trading yesterday,
