Because not profitable.
EUR/CHF wipeout/margin call ... negative balance ... what to do?
- Thread starter Pentaquark
- Start date
Because not profitable.
The euro has dropped a great deal in a short period of time. With more monetary easing planned in the EU, I'm sure the Suisse realized they were in deep trouble if they continued to hang on. Sometimes it's best to just ripoff the bandaid.
Swiss industry is taking a major hit on the SNB move since 60% of all exports go into the EU. Lots of smaller businesses saw their already thin margins vanish in the move and face serious problems. Politicians think that the economy can deal with an exchange rate of 1.1, but the move lower seems not to have been expected. The tourist industry was already struggling with the high exchange rate and the outlook is meak. Outer regions of Switzerland face a major problem as well as retail business already dropped by up to 70% last time CHF was so strong due to people going shopping over the border. Patriotism and long term reasoning is low when people see their immediate buying power increase a couple of miles away! A friend of mine living in Austria mentioned that they thought war was breaking out last saturday due to Swiss customers raiding grocery stores. The border at Konstanz into Germany got closed due to the traffic collapse. The national banks responsibility is to maintain an orderly market and to protect the local industry. They have failed with their move as save haven seeking inflows make the country uncompetitive.
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You're correct; I don't deny this. However supporting a crashing euro I'm certain was becoming unaffordable. Realizing that this was about to become a lot worse with the planned monetary easing, they suddenly realized they'd made a massive error not allowing their currency to float. The mistake was made several years ago, not on January 15th.
New tax treatment for losses:
http://www.forbes.com/sites/greatsp...r-forex-losses-in-the-wake-of-swiss-surprise/
http://www.forbes.com/sites/greatsp...r-forex-losses-in-the-wake-of-swiss-surprise/
Like how they cover, some people made huge money off it, but there broker went under so lost there entire account anyway, YES I've made a huge score, ohhhh why can't I withdraw it
That would SUCK!!
What's new here? Looks straight forward.
@Pentaquark and others caught up in this tragedy - Please keep us informed as to your results. We understand that certain legal strategies may need discretion but it will be insightful to see the outcome. I wish you guys the best.
pentaquark, i am sorry for your loss.
But look at the bright side: From the communication with IB you posted, it seems you have a negative balance in the 5 figures, i.e.<100k, base currency CHF. Switzerland has the highest wages in the world. You can probably pay back all of it with the wages of 2 years of work - just cut down on your rent expense or rent out your owned dwelling momentarily. Tough but maybe more pleasant than dealing endlessly with lawyers and courts. Just imagine this your student loan you have to pay back. In fact, many in the US and elsewhere start their careers with higher student loan debts. In the end, your net present value (all your future income, calculated in purchasing power, and discounted to the present) has probably increased by the SNB decision.
Regarding your belief or suggestion that IB could gain customer goodwill and future clients by forgiving negative balances: IB is rightfully proud of their customer selection. Forgiving negative balances will set a precedent and attract clients they don't want (clients that more or less know that they are likely to lose, and thus deposit only a minimum amount with them, and then gamble widely to either win big or take the "free" IB insurance). Such clients bring limited commissions, high support costs, increase the risks for IB, and wipe out sooner rather than later so that these accounts will soon have to be replaced by new clients attracted by expensive advertising. IB happily lets those customers go to Oanda or Saxo.
You have to understand that the business model of FX "bucket shops" is entirely different. They are like a bookmaker that accepts bets. they only buy currency or hedge with their banks if their clients aggregate exposure goes above a certain level. They ideally make their profit when both their customer group that is long and the one that is short wipe out (in different time frames) due to the normal volatility in FX coupled with aggressive leverage. Then they can just keep their deposits, without any need for FX trading at all.
IB instead is a direct access (to exchanges for stocks, and banks' systems for FX) brokerage.
But look at the bright side: From the communication with IB you posted, it seems you have a negative balance in the 5 figures, i.e.<100k, base currency CHF. Switzerland has the highest wages in the world. You can probably pay back all of it with the wages of 2 years of work - just cut down on your rent expense or rent out your owned dwelling momentarily. Tough but maybe more pleasant than dealing endlessly with lawyers and courts. Just imagine this your student loan you have to pay back. In fact, many in the US and elsewhere start their careers with higher student loan debts. In the end, your net present value (all your future income, calculated in purchasing power, and discounted to the present) has probably increased by the SNB decision.
Regarding your belief or suggestion that IB could gain customer goodwill and future clients by forgiving negative balances: IB is rightfully proud of their customer selection. Forgiving negative balances will set a precedent and attract clients they don't want (clients that more or less know that they are likely to lose, and thus deposit only a minimum amount with them, and then gamble widely to either win big or take the "free" IB insurance). Such clients bring limited commissions, high support costs, increase the risks for IB, and wipe out sooner rather than later so that these accounts will soon have to be replaced by new clients attracted by expensive advertising. IB happily lets those customers go to Oanda or Saxo.
You have to understand that the business model of FX "bucket shops" is entirely different. They are like a bookmaker that accepts bets. they only buy currency or hedge with their banks if their clients aggregate exposure goes above a certain level. They ideally make their profit when both their customer group that is long and the one that is short wipe out (in different time frames) due to the normal volatility in FX coupled with aggressive leverage. Then they can just keep their deposits, without any need for FX trading at all.
IB instead is a direct access (to exchanges for stocks, and banks' systems for FX) brokerage.