See this article - does this imply a lot of people were holding short positions on the currency? Given the well-known upward pressure, why would anyone do this?

  • Presumably because the option was priced attractively, and the SNB hadn't indicated it was likely to release the cap any time soon?
    – Joe
    Jan 16, 2015 at 17:23
  • Now, if you want to know why firms allowed people to take such large short positions that risked their failures, well, that's a better and different question...
    – Joe
    Jan 16, 2015 at 17:24

1 Answer 1


The losses affected retail customers and smaller brokerages the most. The one-day price change in the CHF was the largest of any major currency since World War One, according to that BBC article, and this one from Reuters. It wasn't necessary for traders to be holding large short positions to sustain losses. The massive surge in volatility wiped out small investors and their losses were passed on to brokers, who became insolvent and/or out of regulatory capital compliance.

The Swiss National Bank's move was definitely not anticipated. At the height of the Euro crisis in 2011, SNB pledged to keep the CHF pegged to the Euro at 1.20 and just last month told the ECB it would still defend it. SNB finally gave up at the prospect of spending billions more to continue.

It wasn't necessary for lots of small customers to be short to sustain losses. People who do currency trading are rarely just short in one currency pair. The huge volatility surge, due to the CHF move, roiled forex markets in multiple currencies. When everything breaks down, losses get passed to brokers, but this is a very uncommon occurrence. (Non-forex customers might hedge a single position if there were CHF forex exposure, but that wouldn't wipe them out.)

  • So lots of small customers were short, and probably leveraged, and when they were unable to cover the losses the brokers were on the hook? I don't know anything about forex (obviously) and didn't realize the brokers had that much liability. Why would anybody want to be a broker if you have to cover your clients' losses?
    – Ex Umbris
    Jan 17, 2015 at 0:36
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    This is a different scenario, because they were reportedly holding short CHF positions, A Hedge Fund With $830 Million In Assets Went Bust After The Swiss Franc Surge Jan 17, 2015 at 23:05
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    @JimGarrison Usually, forex trading is a high volume, low transaction cost business. It is brutal because banks move so much money, and fast! It is risky for small investors. I didn't like going near it, even as an institutional money manager. These sort of extreme moves are rare. When everything breaks down, losses get passed to brokers, but this is a very uncommon occurrence. The Swiss stock market lost huge amounts due to the SNB action, so this wasn't good for most Swiss people either. Jan 17, 2015 at 23:26
  • this wasn't good for most Swiss people either That is entirely wrong. Yes in the short term yes, but not so in the long term and for the economy as a whole. The SNB couldn't keep the franc down for long and rake up losses. The SNB took the realistic decision and it couldn't keep the franc down for the traders to be happy.
    – DumbCoder
    Jan 19, 2015 at 9:33
  • @DumbCoder True, but I was referring to the short term only, as that was the context of the question. Jan 19, 2015 at 11:54

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