FXCM Releases Detailed Data on the SNB Flash Crash | Forex Factory

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FXCM Releases Detailed Data on the SNB Flash Crash

  • #1
  • First Post: Mar 11, 2015 8:18pm Mar 11, 2015 8:18pm
On January 15, 2015, the Swiss National Bank (SNB) caused a flash crash that lead to historic dysfunction never seen before in the FX markets when it announced that it was completely (not gradually) removing the 1.2000 self-imposed floor on the EUR/CHF exchange rate.

FXCM has compiled data points which demonstrate the unprecedented and extreme dysfunction of the FX market on January 15th. For the full recording and presentation please click here.

* January 15 Was A Market Flash Crash - The Institutional FX Market Failed And Did Not Function:

  1. No Liquidity - There was almost no available liquidity for approximately 40 minutes
  2. Dramatically Low Pricing - External ECN prices went as low as 0.2000 and 0.5000
  3. Extreme Spreads - The average spreads of EUR/CHF were more than 2000-3000 pips
  4. Extreme Range - The average range of EUR/CHF was 6000 pips.


* The majority of FXCM liquidity providers had stopped quoting prices during this time. Had FXCM's circuit breaks not engaged, the weighted average price of the same orders would have been much lower than the execution price of 1.05, at 0.9760.

* The January 15 flash crash saw the EUR/CHF drop 40% in seconds whereas the 2010 flash crash in the equities market saw about 9% drop in the Dow Jones Industrial Average over the course of a few minutes.

http://i.imgur.com/7yV24Xzl.png

click to enlarge


* The market data show that the losses on January 15 were not the result of FXCM technology or FXCM margin requirements, but rather due to the extreme market dysfunction resulting from the SNB's irresponsible and unforeseen announcement to completely remove the 1.2000 EUR/CHF floor.

* In light of the reckless actions of the SNB, FXCM has since ceased offering any currencies which carry significant risk due to potential manipulation by their respective governments either by a floor, ceiling, peg, or band.

Inserted Video

  • #2
  • Mar 11, 2015 8:50pm Mar 11, 2015 8:50pm
Quoting srt
There's one thing about this mess that's never made sense to me. If FXCM is a NDD, then how could it be that they had any part in the risk? I thought FXCM was just meeting buyer to seller. So retail customer makes deal with liquidity provider & FXCM makes a commission on the transaction. If liquidity provider holds the inventory & sells to the retail customer, where in this process does FXCM get in contact with the product? Ebay has a similar model but never touches the inventory. If a building full of inventory burns down, Ebay has no liability...
Good question!​ How does it work anyway?
  • #3
  • Mar 11, 2015 9:20pm Mar 11, 2015 9:20pm
Watch the video... they explain it clearly in that!!!!
Quoting srt
There's one thing about this mess that's never made sense to me. If FXCM is a NDD, then how could it be that they had any part in the risk? I thought FXCM was just meeting buyer to seller. So retail customer makes deal with liquidity provider & FXCM makes a commission on the transaction. If liquidity provider holds the inventory & sells to the retail customer, where in this process does FXCM get in contact with the product? Ebay has a similar model but never touches the inventory. If a building full of inventory burns down, Ebay has no liability...
  • #4
  • Mar 11, 2015 10:12pm Mar 11, 2015 10:12pm
Technically or in business terms, FXCM is still your counter party even if it merely passes transactions through without putting any thought into the trades. FXCM is the counter party with liquidity providers. The providers know nothing about John or Mary. Only FXCM knows John an Mary.

The providers expect FXCM to cover whatever trades it initiated, even if beneficiaries of the trades were John and Mary. The providers will not come to John and Mary to collect any debt. They will come to FXCM.
  • #5
  • Mar 11, 2015 10:13pm Mar 11, 2015 10:13pm
* In light of the reckless actions of the SNB, FXCM has since ceased offering any currencies which carry significant risk due to potential manipulation by their respective governments either by a floor, ceiling, peg, or band.

Exactly what I said when this thing happened. Brokers are going to be more selective about the pairs on offer.
  • #6
  • Mar 11, 2015 11:44pm Mar 11, 2015 11:44pm
Good on FXCM for taking some action regarding the manipulated currencies....something it, and other brokers should have had the initiative to implement quite some time ago.

The SNB has *always* been 'in the market'...they have never let their currency adhere to the Free Floating Currency Model and it's really a shame that some measure's cannot be taken to isolate them. They have been 'in the market' for at least as long as I've been trading, and for that very reason, I have never traded any CHF cross.....in short, I have never trusted them seeing as they spend so much money interfering in the market. Even now...today...they are 'in the market'...as can be seem by the chart below and by their still increasing overseas currency holdings. Do you think that the eur/chf is steady(ish) at this level by natural market forces?....you're dreaming if you do.

I would be happy to see CHF excluded completely from retail trading as it's just not a level playing field when dealing with SNB and if all the brokers decided to not carry any CHF crosses, that would not be a bad thing.......but at least FXCM has taken a step in the right direction....imo.
Attached Image (click to enlarge)
Click to Enlarge Name: eurchf.jpg Size: 206 KB
Doing what you like is Freedom. Liking what you do is Happiness.
  • #7
  • Mar 12, 2015 12:00am Mar 12, 2015 12:00am
I guess this is what FXCM Damage control looks like. Look its not our fault its the market.. Wonder if it has anything to do with the Earnings conference call tomorrow for their stock who probably will fall below $1 and get booted out of the exchange.

I also find it funny how in the video FXCM says we do not take position against our clients. Should say correctly WE NO LONGER take positions against our clients!

I've started with FXCM in 2001 BEFORE any regulation and those who have been around remember the Re-quotes and Slippage That was specific on clients and Best price wasn't truly the best price but the worst price LOL. Then 7 years later.. They are "fined" for events that took place for over 5 year period LOL. the big joke was who re-quotes you less.

Best thing that happened to forex was metatrader! To get away from this crook platforms!

The golden years are over and the giant finds itself circling the bowl.. How the mighty always fall.

Market in the U.S is already also circling the bowl, and reputation took BIG hits.

I for one, not shedding any tears you live by the sword you get stabbed in the back by the same sword!
There are those who know, and there are those who don't know.
  • #8
  • Edited 12:31am Mar 12, 2015 12:09am | Edited 12:31am
Quoting realjumper
Good on FXCM for taking some action regarding the manipulated currencies....something it, and other brokers should have had the initiative to implement quite some time ago. The SNB has *always* been 'in the market'...they have never let their currency adhere to the Free Floating Currency Model and it's really a shame that some measure's cannot be taken to isolate them. They have been 'in the market' for at least as long as I've been trading, and for that very reason, I have never traded any CHF cross.....in short, I have never trusted them seeing...
Technically.. All currencies are at this current stage are "no longer free" They are all manipulated.. USD with their QE and EU with their QE and JPY with their QE and should I keep going? Negative interest rates.. At that rate we might as well pack up forex lol. We deal with the cards were dealt, yes what CHF did was a low blow.. They knew exactly what they were doing and the consequences. If this was a fair game, lmao I cant say that with a straight face.. Fair game. Its like playing poker in a saloon you ain't walking away without at least one shootout.

I also find it funny how the U.S criticized China for "manipulation" and not letting its currency be free floating instead keeping it fixed bla bla bla Then they turn around and be like were going to start printing money and call it QE.. because we don't want normal people to understand were committing sorta legal probably illegal counterfeiting. Just turning on the printing press and see what happens.. Cause being a hypocrite is the best kind of crite!
There are those who know, and there are those who don't know.
  • #9
  • Mar 12, 2015 12:23am Mar 12, 2015 12:23am
Thanks Jason and FXCM. Good information and basically what I thought.

Not sure how much exposure there is with the Yuan, but you all may want to drop that currency also.

Too bad the usual suspects will continue with their incessant drivel.
Mark ... Everything you have been told is a LIE
  • #10
  • Mar 12, 2015 12:36am Mar 12, 2015 12:36am
Quoting palabara
{quote} Technically.. All currencies are at this current stage are "no longer free" They are all manipulated.. USD with their QE and EU with their QE and JPY with their QE and should I keep going? Negative interest rates.. At that rate we might as well pack up forex lol. We deal with the cards were are dealt, yes what CHF did was a low blow.. They knew exactly what they were doing and the consequences. If this was a fair game, lmao I cant say that with a straight face.. Fair game. Its like playing poker in a saloon you ain't walking away without...

Yes you're quite correct...all currencies are manipulated up to a point, and that's something that we have to live with and take advantage of if we can. However the SNB continually pick a 'line in the sand' to defend until such time as they can no longer stand the cost of doing so, whereupon the market will go to where it always wanted to in the first place....the market will always win!! But, the 'peg' of the SNB was manipulation in it's crudest and most blatant form. It was more or less that the SNB will do whatever it takes to protect the Swiss currency, and to hell with everyone else. The graphic illustration of this "I'm alright Jack" attitude was of course, the statement that they will continue to defend the line in the sand (the peg), and then a few days later abandon it completely out of the blue....and to hell with everyone else.

How much money do you imagine the SNB made from this 'peg' removal?

Of course there is QE aplenty going around the world, but it's all reasonable transparent. We knew pretty much what the Fed was up to, because they told us. We knew that Abe and Kuroda would take 'bold steps' to QE with the Yen, because they told us. We knew what Draghi was going to have to do re QE, because the ECB told us. Anyone who didn't take advantage of this knowledge to make some money is in the wrong business!!

I agree with you completely where USA blasts China re 'manipulation', when they do exactly the same thing......but at the end of the day, China don't really care what others think or say....they do it their way and good on them for doing it!!
Doing what you like is Freedom. Liking what you do is Happiness.
  • #11
  • Mar 12, 2015 12:43am Mar 12, 2015 12:43am
Quoting realjumper
{quote} Yes you're quite correct...all currencies are manipulated up to a point, and that's something that we have to live with and take advantage of if we can. However the SNB continually pick a 'line in the sand' to defend until such time as they can no longer stand the cost of doing so, whereupon the market will go to where it always wanted to in the first place....the market will always win!! But, the 'peg' of the SNB was manipulation in it's crudest and most blatant form. It was more or less that the SNB will do whatever it takes to protect...

What I was thinking just as they announced it what on January 13.. What would happen? I knew that if EU is going to do QE its not feasible for CHF to hold the peg.. but they made their announcement and I'm thinking they are really going to burn that much money.. huh. Okay will see.. I didn't foresee the carpet being pulled underneath, to be so blunt.. but they did it.. They made a false announcement to catch everyone off guard and then pulled the carpet and then they go on and make a statement well we couldn't have told you because otherwise it wouldn't have worked. The problem with that besides the damage they caused and the riches some individuals made.. was SNB lost tons of credibility. They painted themselves as distrustful.. I know that I can't trust what you tell me now, because your two faced. So I think their "protection" is going to cost them a lot more because anyone who's anyone will think twice can I trust the Swiss? Because I can see they will betray me 1st chance it suits them. I don't even trust their watches anymore lol!

Quoting realjumper
{quote} How much money do you imagine the SNB made from this 'peg' removal? !
The SNB didn't make money it actually cost them money as a currency they've lost money by cutting the peg.. because of the re-price. Now the losses are closing, but more in terms of individuals who knew of this "insider" carpet pullet under the feet and played on it, because all the lost money was made some where else.. you didn't "lose" money it just "exchanged" So I am not saying they were on the receiving end fully, but I am saying that they didn't "individually" lose either at least the inner circle. Someone threw someone else threw someone else.. and who's going to investigate? The squeaky wheel gets the grease.
There are those who know, and there are those who don't know.
  • #12
  • Mar 12, 2015 12:52am Mar 12, 2015 12:52am
Quoting palabara
{quote} What I was thinking just as they announced it what on January 13.. What would happen? I knew that if EU is going to do QE its not feasible for CHF to hold the peg.. but they made their announcement and I'm thinking they are really going to burn that much money.. huh. Okay will see.. I didn't foresee the carpet being pulled underneath, to be so blunt.. but they did it.. They made a false announcement to catch everyone off guard and then pulled the carpet and then they go on and make a statement well we couldn't have told you because otherwise...
ROFL.....I agree.....they can take their cuckoo clock industry and go yodel in the mountains for all I care!! I never did trust SNB, and their two faced lying puppets, and this action just confirms that my mistrust of them is well placed!
Doing what you like is Freedom. Liking what you do is Happiness.
  • #13
  • Mar 12, 2015 12:57am Mar 12, 2015 12:57am
Quoting palabara
The SNB didn't make money it actually cost them money as a currency they've lost money by cutting the peg.. because of the re-price. Now the losses are closing, but more in terms of individuals who knew of this "insider" carpet pullet under the feet and played on it, because all the lost money was made some where else.. you didn't "lose" money it just "exchanged" So I am not saying they were on the receiving end fully, but I am saying that they didn't "individually" lose either at least the inner circle. Someone threw someone else threw someone...
Well yes, the SNB was losing from the day it implemented the peg, but you can bet you're bottom dollar they had a few bucks on that peg removal!!
Doing what you like is Freedom. Liking what you do is Happiness.
  • #14
  • Mar 12, 2015 10:42am Mar 12, 2015 10:42am
Quoting srt
There's one thing about this mess that's never made sense to me. If FXCM is a NDD, then how could it be that they had any part in the risk? I thought FXCM was just meeting buyer to seller. So retail customer makes deal with liquidity provider & FXCM makes a commission on the transaction. If liquidity provider holds the inventory & sells to the retail customer, where in this process does FXCM get in contact with the product? Ebay has a similar model but never touches the inventory. If a building full of inventory burns down, Ebay has no liability...
Quoting mindscream
{quote} Good question!​ How does it work anyway?
Quoting grin
Technically or in business terms, FXCM is still your counter party even if it merely passes transactions through without putting any thought into the trades. FXCM is the counter party with liquidity providers. The providers know nothing about John or Mary. Only FXCM knows John an Mary. The providers expect FXCM to cover whatever trades it initiated, even if beneficiaries of the trades were John and Mary. The providers will not come to John and Mary to collect any debt. They will come to FXCM.
Grin is correct. At the time of the SNB announcement over 3,000 FXCM clients held slightly over $1 billion in open positions on EUR/CHF. Those same clients held approximately $80 million of collateral in their accounts. This was the largest move of a major currency since currencies started floating in 1971.

The EUR/CHF move was 44 standard deviation moves, while most risk management systems only contemplate 3-6 standard deviations. The moved wiped out those clients account equity as well as generated negative equity balances owed to FXCM of over $225 million. We believe that the FXCM system operated properly during this event.

The caveat of our no dealing-desk execution system is that traders are offset one for one with a liquidity provider. When a client entered a EUR/CHF trade with FXCM, FXCM Inc. had an identical trade with our liquidity providers. During the historic move, liquidity became extremely scarce and shallow, which affected execution prices. This liquidity issue resulted in some clients having a negative balance.

While clients could not cover their margin call with us we still had to cover the same margin call with our banks. When a client profits in the trade FXCM gives the profits to the customer, however, when the client is not profitable on that trade FXCM Inc. ends up having to pay the liquidity provider.

FXCM ended with a regulatory capital shortfall. Accordingly, FXCM needed to get a loan to cover this balance, which it did. For anyone that still thinks FXCM is running an FX dealing desk, we have now demonstrated that such is not the case.

Quoting Xxavier
Watch the video... they explain it clearly in that!!!! {quote}
As Xxavier mentioned, here is a link to the part of the video which explains this in detail.
  • #15
  • Mar 12, 2015 7:45pm Mar 12, 2015 7:45pm
Hi Jason, I have a few (and I hope easy to answer) questions:

1. What is the average ECF/USD price FXCM was able to close those losing client positions and exit them ? (in other words the average price settled with liquidity providers). Furthermore, are you able to provide the average closing price for each major liquidity provider FXCM dealed with at that time?

2. Was FXCM forced to exit the market for a percentage of those positions (let's say 10% of them) at the low extreme of the prices (i think the video mentions 0.55) ?

3. When were those losses settled ? during the debacle, during the next few hours or next day?

Thank you.
Once A Trader Always A Trader.
  • #16
  • Mar 13, 2015 8:19am Mar 13, 2015 8:19am
Quoting Liviu
Hi Jason, I have a few (and I hope easy to answer) questions: 1. What is the average ECF/USD price FXCM was able to close those losing client positions and exit them ? (in other words the average price settled with liquidity providers). Furthermore, are you able to provide the average closing price for each major liquidity provider FXCM dealed with at that time? 2. Was FXCM forced to exit the market for a percentage of those positions (let's say 10% of them) at the low extreme of the prices (i think the video mentions 0.55) ? 3. When were those...
EBS (primary ECN for EUR and CHF) declared that valid low of EUR/CHF was 0.85 so all trades done by banks below that price were changed to 0.85. So if FXCM sold EUR/CHF at 0.55 to their liquidity provider then later that got adjusted in their favor to 0.85. I am not sure FXCM gave that benefit back to end client.

Banks also adjusted trades that were done at too high a price (i.e. 1.10-1.19 range). Usually most banks adjusted them down to 1.00-1.06 range.
Think : Trade : Live Life
  • #17
  • Mar 13, 2015 4:20pm Mar 13, 2015 4:20pm
Quoting Liviu
Hi Jason, I have a few (and I hope easy to answer) questions: 1. What is the average ECF/USD price FXCM was able to close those losing client positions and exit them ? (in other words the average price settled with liquidity providers). Furthermore, are you able to provide the average closing price for each major liquidity provider FXCM dealed with at that time? 2. Was FXCM forced to exit the market for a percentage of those positions (let's say 10% of them) at the low extreme of the prices (i think the video mentions 0.55) ? 3. When were those...
Quoting stt
{quote} EBS (primary ECN for EUR and CHF) declared that valid low of EUR/CHF was 0.85 so all trades done by banks below that price were changed to 0.85. So if FXCM sold EUR/CHF at 0.55 to their liquidity provider then later that got adjusted in their favor to 0.85. I am not sure FXCM gave that benefit back to end client. Banks also adjusted trades that were done at too high a price (i.e. 1.10-1.19 range). Usually most banks adjusted them down to 1.00-1.06 range.
FXCM systems allowed most clients to exit trades between 1.02 & 1.04 and avoid the extreme lows of the extraordinary market event. Our circuit breakers protected traders from getting filled at worse prices.

In normal market conditions, there are more than a dozen active liquidity providers and quotes good for sixty million on each side (both Bid and Ask) that refresh every few seconds. FXCM saw executable liquidity drop to nearly zero two minutes into the event. EUR/CHF was dropping from 1.20 and FXCM had little ability to execute client stop orders or margin calls because there were almost zero effectively executable quotes.

EUR/CHF dropped below 1.2000 at 04:30:47 on January 15th. FXCM executed approximately 200 million in total volume before 4:30:56 in the 1.17 to 1.20 range. At 4:30:57, FXCM's circuit breakers engaged and would not execute the remaining approximately 1 Billion until the market began to function with stable pricing. FXCM's system circuit breakers deploy to halt new quotes and trading, and are designed to protect clients against erroneous quotes and off-market trades.

The majority of FXCM liquidity providers had stopped quoting prices during this time. Had FXCM's circuit breaks not engaged, the weighted average price of the same orders would have been much lower than the execution price of 1.05, at 0.9760. With no liquidity for approximately 45 minutes, the market began to stabilize around 5:10 am at a price of 1.0400.

Here's a link to the section of the video that discusses the circuit breakers in more detail.
  • #18
  • Mar 13, 2015 5:37pm Mar 13, 2015 5:37pm
Hi Jason,

If my math is righ (based on your prior post):

$ 200 million x 0.03 = $ 6 million (assuming worst case scenario of exiting at 1.17 with 0.03 = 1.20- 1.17)

$ 1000 million x0.15 = $ 150 million (with 0.15 = 1.20-1.05)


FXCM client assests wiped out by the move as mentioned in your post #14 were $ 80 millions. That would leave FXCM in the hole for about 156- 80 =
$ 76 (million).

The press release mentions ~ $225 million loss sustained by FXCM. Can you explain where the difference between $ 76 million and $225 million comes, presuming my math is right ? Otherwise, what is the right way to add up (or substract) the things.

Thank you.
Once A Trader Always A Trader.
  • #19
  • Mar 13, 2015 5:44pm Mar 13, 2015 5:44pm
What about my 1,000 yard short from 1.23? I want my TP that was at 0.55!!!! No thanks to your circuit breakers... JK
Too close for pips, switching to points.
  • #20
  • Last Post: Sep 28, 2015 11:34am Sep 28, 2015 11:34am
Quoting Jason Rogers
{quote} {quote} {quote} Grin is correct. At the time of the SNB announcement over 3,000 FXCM clients held slightly over $1 billion in open positions on EUR/CHF. Those same clients held approximately $80 million of collateral in their accounts. This was the largest move of a major currency since currencies started floating in 1971. The EUR/CHF move was 44 standard deviation moves, while most risk management systems only contemplate 3-6 standard deviations. The moved wiped out those clients account equity as well as generated negative equity balances...
How many of the 3,000+ clients were with FXCM US? It's confusing when you mix 50:1 clients and 400:1 clients.
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