The Swiss National Bank's surprise decision to stop effectively pegging its currency to 1.20 against the euro (after three years of doing so) has claimed its first major scalp foreign exchange broker (and West Ham sponsor) Alpari UK.
Why did this happen?
This happened so rapidly that stop-lossor not, anyone who was short' the Swiss franc against pretty much any other currency would have lost a huge amount of money, almost certainly more than any worst-case scenario they'd have considered.
As a result as Alpari put it in a statement "This has resulted in the majority of clients sustaining losses which has exceeded their account equity. Where a client cannot cover this loss, it is passed on to us."
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While Alpari had indicated last week that it was insolvent, an announcement on its site now says that it "has not entered a formal insolvency process." Instead "the board of directors are urgently considering all options including a sale and are liaising closely with the FCA."
What happens now?
In the case of Alpari UK, the company specifically stated that "retail client funds continue to be segregated in accordance with FCA rules." In short, regardless of the eventual outcome,if you had money with the company, it should be safe (bar any investment/trading losses actually related to the Swiss move).
So who'll sponsor West Ham now?
What about brokers in general? What if the worst happens?
This will cover you up to a £50,000 limit to be clear, this is not about covering losses on your investments, it's about protecting money (or assets) you had on account with your broker. If you were owed more than that, then you would not necessarily get all the money back.
John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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