Home Forex Articles A tale of two forex brokers — How Alpari UK and FXCM dealt with chaos. Perhaps, a few prayers would be more in order for those brokers that quickly bit the dust, overwhelmed by client losses from highly leveraged or automated trades. Both firms have been around for some time.

Alpari UK has its roots back in Russia in , but its UK operation was formed in , as part of a global expansion. The company remains private, and Andrey Dashin, one of its original founders, is a name most often associated with the Alpari Group today.

FXCM, on the other hand, is a public company with its shares traded on Wall Street. The firm was founded in in New York and is one of the early developers of retail forex trading.

Both firms also offer a wide range of trading products and services, not confined purely to foreign exchange, but the damage to each occurred due to the swift appreciation of the Swiss France when the Swiss National Bank SNB removed its 1.

Many highly-leveraged positions and automated trades from robots and EAs were caught short when the maelstrom occurred last week. Many brokers halted trading until sanity returned. The market has since leveled off around parity, but recorded losses have been enormous. Alpari UK announced that it was closing its doors and applying for insolvency.

The total amount of loss sustained was not disclosed, but these actions did not directly impact the Alpari Group or its flagship, Alpari RU. Their initial communication on Friday, following the carnage from the previous day, read as follows:.

This has resulted in the majority of clients sustaining losses which has exceeded their account equity.

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Where a client cannot cover this loss, it is passed on to us. Retail client funds continue to be segregated in accordance with FCA rules. FXCM for a while was even cast as a potential suitor, but both firms quickly denied that discussions were taking place.

When Monday rolled around, Alpari UK filed for insolvency, and an administrator was appointed. In their latest release, the firm remains hopeful, as implied by the following words:. We will be speaking with these parties and others over the next few days, and hope to secure a deal to preserve the business and jobs as far as possible.

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It will take time to determine the true extent of customer losses, since many liquidity providers are presently re-quoting settlement rates. A back office reconciliation nightmare has ensued.

From a loss perspective, FXCM was one of the first brokers to release an actual figure for its losses. As a result of these debit balances, the company may be in breach of some regulatory capital requirements.

We are actively discussing alternatives to return our capital to levels prior to today's events and discussing the matter with our regulators. As their shares on Wall Street plummeted, investors absorbed these losses in depreciated share value. A complete loss value remains to be determined. The Risk Guillotine can be extremely harsh when handing out its judgments.

The 3-day weekend in the U. Brokers, banks, managed funds, and investors have lost millions, due the abrupt action taken by a single central banker.

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The SNB surely could have pursued a more gradual approach to solving its pressing financial issue. Alpari UK and FXCM are just two examples of how firms scramble during chaos, grabbing for any financial life preserver that is handy.

As many have already reported, we may only be seeing the tip of this iceberg. It may take months to unravel its broad-based consequences.

In recent years, the world of retail forex has had to absorb the crisis in Cyprus, the Russian Ruble collapse, and now the Swiss Franc Debacle. One thing is clear with these types of unpredictable risk. You must ensure that your forex broker really does segregate your deposits away from operating capital in Tier-1 bank accounts in accordance with strict regulatory standards. It also helps to avoid unnecessary constructs that are designed to manipulate market forces, the SNB peg for one.

Your invested capital is at significant risk. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.

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