But for hundreds of Australia’s 51,000 mum and forex trading course australian currency exchange retail forex traders, that dream has turned into a nightmare. Now, some of them are being chased by their foreign exchange brokers to pay out those losses. The cap was in place to stop the Swiss franc appreciating too much. The franc was seen as a safe haven, and an overvalued currency would make its domestic economy uncompetitive, and hamper economic growth.
When the cap was unexpectedly removed, the franc appreciated by 30 per cent in an instant against the euro, and foreign currency traders holding the franc made windfall gains. But those on the other side of the transaction were left scrambling to cover their losses and, in the case of some of the world’s biggest foreign exchange trading firms, exposed to hundreds of millions of dollars in losses. Australian traders lose millions”If I were to pay for the negative balance, it would mean the potential loss of my home, possible break up of my family,” said one FXCM client, a foreign currency trader who has asked for legal reasons that his identity not be revealed. It has cost a tremendous amount of emotional pressure for me and my wife, and we are extremely worried about our kids’ future. FXCM’s clients accept that they were liable to lose the capital they had contributed to their foreign exchange trading accounts. This policy is very clear and straight forward, that FXCM guarantees no debt is owed to FXCM if any negative balance occurred,” said the FXCM client. This is one of the very important reasons for me and all the other victims to choose FXCM as our currency broker.
It is FXCM’s policy to credit retail trading accounts to a zero balance when debit balances occur as a result of trading. One of the greatest concerns traders have about leverage is that a sizable loss could result in owing money to their broker. At FXCM, your maximum risk of loss is limited by the amount in your account. All accounts are tracked by our “Margin Watcher” feature.
Despite those assurances from FXCM, the client told the ABC he received an email from FXCM in January demanding he pay out a negative balance of several hundred thousand dollars. FXCM’s aggrieved Australian clients argue that other brokers navigated the Swiss franc shock in much better shape than FXCM because they had better risk management practices in place, and their clients’ accounts were closed out quickly before losses spiralled out of control. Yes, of course we have to take responsibility ourselves, but only to the extent of the amount of money we put in,” the client added. However, with leverage comes the risk of greater losses when currencies move against the trader. 2 million position on a currency. 1,990,000 is borrowed from the foreign exchange broker. 10,000 of borrowed money, putting them into a negative balance with their broker.
600,000 in arrears in an instant. FXCM has confirmed that 115 of its 16,000 Australian clients had a negative balance as a result of the Swiss franc event. The company said it has notified 10 clients that their negative balances need to be repaid. 250,000 into their accounts over the lifetime of their account, and have at least two years trading experience.
FXCM said the negative balances of the other 105 clients have been forgiven. In a statement to the ABC, FXCM’s chief executive Drew Niv said the contractual position with clients was clear. FXCM Australia has the legal and contractual right to fully recover the negative balances of its Australian clients and that Australian clients were or should have been aware of such accountability,” the statement read. The company argues that the Swiss National Bank’s actions on January 15 were a “force majeure” event, which include government actions that prevent an orderly market, or exceptional market events. However, in Australia, foreign currency brokers are offering leverage ratios of up to 500:1. Associate Professor Mark Crosby from the Melbourne Business School told the ABC last month there was no place for leveraged retail foreign exchange trading platforms in Australia. I think they should not be available to retail investors at all, and I certainly don’t think they should be promoted to retail investors,” he said.
The Australian Securities and Investments Commission says the question of greater controls is one for Government, but it has repeatedly warned consumers that leveraged foreign exchange trading is a risky product. However, victims of the Swiss franc meltdown argue that ASIC should have policed the industry more thoroughly. I’ve felt ASIC, acting as the Australian regulator for these financial institutions, should really take partial responsibility for the current mess,” an FXCM client told the ABC. We need ASIC to provide a safe, comfortable environment for any leveraged financial product for people to trade. Because this time it happened in the currency space, but who knows what is the next time bomb? Do you know more about this story?