Tag Archives: CURRENCY

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Swiss shock crushes US currency broker

The franc’s ripple effect on European markets

NEW YORK (CNNMoney)

Currency brokerage FXCM has been caught in the Swiss currency trap.

The Swiss central bank shocked global financial markets this week by ending its peg on the franc. The move caused the Swiss currency to skyrocket, sparking big losses for investors who were betting against such a move.

Some of those investors were clients at FXCM (FXCM), a leading foreign-exchange broker in the U.S. Late Thursday the New York-based firm said the “unprecedented volatility” wiped out its equity.

In fact, FXCM said it has a negative equity balance of $ 225 million. That’s money that customers owe to the company.

FXCM also warned it may have breached some regulatory capital requirements.

The turmoil forced FXCM to turn to Leucadia National (LUK), the owner of investment bank Jefferies, for an emergency $ 300 million loan. FXCM said the financing agreement, announced late Friday, allows the firm to continue normal operations.

FXCM’s regulator, the Commodity Futures Trading Commission, did not respond to a request for comment.

Related: Swiss companies and currency brokers bleed

Wall Street was understandably spooked by the developments, sparking an 85% plunge for FXCM’s shares in premarket trading on Friday. The shares did not open on Friday morning pending the news that was release just before the market closed.

Swiss currency FXCM Turmoil in the currency market has wiped out the equity of leading foreign-exchange broker FXCM.

The FXCM situation raises questions about the assets clients have at the troubled broker. Since FXCM is a currency broker, most of those assets are futures, options and swaps contracts — none of which are protected by insurance if a broker collapses.

That stands in contrast with other securities like equities that are protected from a broker collapse by a federal insurance fund, the Securities Investor Protection Corporation.

“It’s irresponsible on the part of lawmakers and regulators that no insurance fund exists for futures customers. If a firm goes down, it’s very difficult to get money back for customers,” said Bart Chilton, a former CFTC commissioner who is now a senior policy advisor at DLA Piper.

However, the Dodd-Frank reform law did implement capital and margin requirements.

FXCM is not the only currency broker slammed by the dramatic Swiss move.

Interactive Brokers (IBKR), an electronic broker that deals with stocks along with currencies, said several customers suffered losses in excess of their deposits with the firm. Interactive said such debits amount to about $ 120 million, or 2.5% of the company’s net worth.

Global Brokers, a New Zealand firm, also said its capital had been wiped out. The U.K.’s Alpari said it’s unable to cover client losses and is now insolvent.

Were you hurt by the Swiss move? Share your story!

The decision by the Swiss National Bank to scrap a three-year cap on the value of the franc against the euro caused the Swiss currency to soar as much as 30% at one point.

“You had a big surprise move by a central bank and it blew people out of the water,” said Michael Block, chief market strategist at Rhino Trading.

Many traders were using the Swiss franc as a “lazy hedge,” Block said, but the trade ultimately “blew up in their faces.”

CNNMoney’s Mark Thompson and Ivana Kottasova contributed to this report.

cnn_money_markets_22

Why the new ISIS currency is doomed

ISIS plans to create its own currency

NEW YORK (CNNMoney)

If history is any guide, the new ISIS plot to create its own currency is destined to fail.

That’s according to gold and currency expert Axel Merk of Merk Investments in San Francisco.

ISIS unveiled its plan for gold, silver and copper coins on Thursday in an effort to distance themselves from the West. The currency’s value will be based on the actual worth of the metals.

Merk says the plan to use the metal currency could work in theory, but it won’t last long.

“They realize the international banking system is not very open to them,” he said. “If they use paper currency, they’ll have rampant inflation.”

Related: Metals meltdown: Gold isn’t glittering

Pegging their currency to the dollar as many smaller countries do is obviously not an option for ISIS. They stated that the point of the new currency is to remove Muslims from the “global economic system that is based on satanic usury.”

isis currency New ISIS gold coins

The golden flaw: The challenge, Merk claims, will be getting citizens to accept the monetary system and keep it going. He said it’s likely that people in ISIS-controlled territory will chip away at the coins in an effort to extract the worth of the metals. They’re also likely to hoard them.

Related: Mideast tries to starve ISIS of cash

Eventually, ISIS will run out of gold to finance its activities and will be forced to lower the metal contents in the coins, which would render them useless. That’s been the case throughout history with ancient coin systems, Merk claimed.

“They’re going to have to cheat and print money like every central bank does,” he quipped.

On the other hand, ISIS rules by violence, and citizens might be scared not to accept whatever form of money ISIS puts out.

“They chop people’s heads of if you don’t accept…it’s the currency of the land,” he said.

ISIS is bad publicity for businesses

Economic woes: ISIS may also face problems maintaining its currency going forward as the U.S. led airstrikes intensify. While the group is flush with cash from oil sales, ransoms, and taxes, there are indications that the U.S. led airstrikes are taking a toll by limiting its ability to operate. Additionally, countries in the Middle East are working towards a plan to cut off ISIS from raising funds from wealthy sympathizers in the region.

“A vibrant currency requires a vibrant economy. You don’t get one without the other.” said Merk.

cnn_money_markets_22

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Iran’s gold and currency markets-Iran Today-02-07-2012

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