The move by the Swiss National Bank was undoubtedly a huge surprise that caught markets unprepared. This kind of “Black Swan†event is not too common and has special implications.
With scarce liquidity and fast moving markets, it certainly makes sense for spreads to widen and for brokers to decide on the suspension of trading in CHF pairs. But how exactly do brokers react? This is a test for all of them: a test to see which ones react better in times of such events – especially how they treat clients.
More: SNBomb – Reactions from 13 forex brokers – article being updated as news evolves.
What can brokers be tested on:
A return to normality
There will still be wild moves as the Swiss franc gradually returns to be a more-or-less free floating currency. It will be interesting to see:
- How quick brokers that suspended trading re-enable it. While a suspension certainly makes sense, the franc could return to be the major pair it used to be and could even attract new traders now that it is free from the peg.
- How fast spreads do spreads on USD/CHF and EUR/CHF for example, meet spreads of other pairs. Otherwise, why trade the franc, or why trade the franc with a broker offering high spreads?
Dispute resolution
It is very hard to fill orders in such extreme moves. If an order was set on 1.15 on EUR/CHF, which price did it actually get? The price pierced through these levels quite quickly. Whose fault is it? The brokers will be tested on:
- How quickly will they resolve the situation? This is an extreme situation that probably has employees at brokers already working extra hours. The faster this is resolved, the better.
- What amendments they make in the aftermath? Prices can be changed and fixed. But how will it directly go?
- How they handle and communicate all this to clients? There is a huge difference between sending a dry email that basically tells the client that there’s nothing to do, and an emphatic conversation that provides a full explanation.
This is of course only a basic set of questions, and more specific ones will probably pop up as markets digest this huge event.
Are you trading the franc? If so, how was your experience with the SNBomb?
Further reading:
- SNB also breaks the brokers – MT4 providers removing CHF quotes – slowly recovering
- EUR/USD falls to the lowest since November 2003 – guide to the next big levels
- 3 hints from the SNB that ECB QE is going to be really big
