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Brokers Forgiving Negative Balances From CHF Move
- Thread starter cstfx
- Start date
Let's not confuse these actions by forex brokers of forgiving negative balances as helping the little guy.
Think about it. If you run an unmatched book (i.e. you trade against your client) the trades basically go nowhere and are held on your firms books. So in simple terms, a client loses money, you make it. This is good as long as the client is not debit. A client deposits $1000, loses a $1000 the firm is happy, they make $1000. However, in this same scenario if a client loses his $1000 then another $500 they are debit $500. The firm must now treat that as a liability and reduce capital by $500. Since the trade probably did not go anywhere anyways, simple forgive the debit which reduces the firms $500 liability. You appear like a good guy but really cleaning up capital.
Man, sorry but it's nonsense. Just turn on your logic: This is common policy among majority of brokers - including true ECN/STP to take over losses of clients if it exceeds their margin (Read T&S to make sure of that). No one agrees (including you too) to join in broker who will lay damages at its clients, right? Or you wanna say that if, for example, true STP like Hotforex or damaged FXCM recouping balances to zero they are automatically market makers?Let's not confuse these actions by forex brokers of forgiving negative balances as helping the little guy.
Think about it. If you run an unmatched book (i.e. you trade against your client) the trades basically go nowhere and are held on your firms books. So in simple terms, a client loses money, you make it. This is good as long as the client is not debit. A client deposits $1000, loses a $1000 the firm is happy, they make $1000. However, in this same scenario if a client loses his $1000 then another $500 they are debit $500. The firm must now treat that as a liability and reduce capital by $500. Since the trade probably did not go anywhere anyways, simple forgive the debit which reduces the firms $500 liability. You appear like a good guy but really cleaning up capital.
It really doesn't fit in the facts...
Man, sorry but it's nonsense. Just turn on your logic: This is common policy among majority of brokers - including true ECN/STP to take over losses of clients if it exceeds their margin (Read T&S to make sure of that). No one agrees (including you too) to join in broker who will lay damages at its clients, right? Or you wanna say that if, for example, true STP like Hotforex or damaged FXCM recouping balances to zero they are automatically market makers?
It really doesn't fit in the facts...
I don't recall my post naming any names. But if the firm is a dealing desk then yes forgiving a client debit frees up firm capital on the balance sheet.
I don't recall my post naming any names. But if the firm is a dealing desk then yes forgiving a client debit frees up firm capital on the balance sheet.
You are talking like it was spontaneous decision among brokers - let me repeat once again - it is clearly stated in their T&S that broker covers all negative amount some trader went up. Whether it is market maker or agency model. Those which had loosened control on risks or inadequate money cushion - went astray.
Most well-known brokers lost millions dollar to overcome Swiss move. I don't think we can consider a broker is MM or true ECN through this Swiss, but somehow I think a real true ECN lost lesser than a MM.
Absolutely agree. Traders have been underrating the probability of "losing more than your margin" thought this is impossible to meet liquidity collapse in 5-trillion, but finally they paid for their slip - with all of their deposits.
Now it's funny to see how everybody hastened to learn and analyze this seemingly trifling and unimportant as they thought part of the trading - Money Management.