The SNB Crisis Lesson: Only the Strong Will Survive
- Despite growing demand by traders for stable liquidity rather than better spreads or lower commissions, some brokers still take unnecessary risks for a quick buck.
This article was written by Michael Davies, Senior Sales Manager at Sucden Financial.
Currency crises are inevitably going to happen from time to time. History has shown us that anything is possible – and the Swiss National Bank events last year were a reminder of this and confirm my view that, in the long-term, only the financially strong firms will survive.
Michael Davies
I believe that many brokerages have learned valuable lessons from the SNB crisis. For example, there has certainly been a noticeable shift from cost to counterparty risk. The majority of brokers we speak to are now more focused on working with larger, better capitalised Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term providers (LPs).
Before SNB events potential new clients seldom asked us for our financials and always focused heavily on spreads or commissions. Post SNB, virtually all potential clients request our audited financial information and safety and security of funds is now just as important as finding the best value LP to work with.
Brokers are still taking risks for a quick buck
I am surprised, however, that there are still a number of brokers out there who clearly haven’t learned from the events and are still eager to ignore prudence in search of profit. They are certainly putting themselves at risk as casualties in a future financial crisis.
Post SNB, virtually all potential clients request our audited financial information
It is always difficult to predict the next crisis but when we look at the companies that collapsed, it is usually because their underlying financials were weak or because they over extended themselves, taking unnecessary risks for a quick buck.
The only thing a brokerage can do to protect themselves is to take a more cautious approach to growth and try to strengthen the financial position of their organisation so it can weather the next Black Swan Black Swan A Black Swan event is most commonly associated with an unforeseen calamity or event. In its most basic form, this event results in disastrous consequences for multiple parties, markets, or individuals and are characterized as extraordinarily rare in frequency, yet are seemingly predictable in retrospect. In the foreign exchange space, the most noteworthy of these events in recent memory was the Swiss National Bank (SNB) crisis which roiled currency markets back on January 15, 2015.During this in A Black Swan event is most commonly associated with an unforeseen calamity or event. In its most basic form, this event results in disastrous consequences for multiple parties, markets, or individuals and are characterized as extraordinarily rare in frequency, yet are seemingly predictable in retrospect. In the foreign exchange space, the most noteworthy of these events in recent memory was the Swiss National Bank (SNB) crisis which roiled currency markets back on January 15, 2015.During this in Read this Term.
This article was written by Michael Davies, Senior Sales Manager at Sucden Financial.
Currency crises are inevitably going to happen from time to time. History has shown us that anything is possible – and the Swiss National Bank events last year were a reminder of this and confirm my view that, in the long-term, only the financially strong firms will survive.
Michael Davies
I believe that many brokerages have learned valuable lessons from the SNB crisis. For example, there has certainly been a noticeable shift from cost to counterparty risk. The majority of brokers we speak to are now more focused on working with larger, better capitalised Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term providers (LPs).
Before SNB events potential new clients seldom asked us for our financials and always focused heavily on spreads or commissions. Post SNB, virtually all potential clients request our audited financial information and safety and security of funds is now just as important as finding the best value LP to work with.
Brokers are still taking risks for a quick buck
I am surprised, however, that there are still a number of brokers out there who clearly haven’t learned from the events and are still eager to ignore prudence in search of profit. They are certainly putting themselves at risk as casualties in a future financial crisis.
Post SNB, virtually all potential clients request our audited financial information
It is always difficult to predict the next crisis but when we look at the companies that collapsed, it is usually because their underlying financials were weak or because they over extended themselves, taking unnecessary risks for a quick buck.
The only thing a brokerage can do to protect themselves is to take a more cautious approach to growth and try to strengthen the financial position of their organisation so it can weather the next Black Swan Black Swan A Black Swan event is most commonly associated with an unforeseen calamity or event. In its most basic form, this event results in disastrous consequences for multiple parties, markets, or individuals and are characterized as extraordinarily rare in frequency, yet are seemingly predictable in retrospect. In the foreign exchange space, the most noteworthy of these events in recent memory was the Swiss National Bank (SNB) crisis which roiled currency markets back on January 15, 2015.During this in A Black Swan event is most commonly associated with an unforeseen calamity or event. In its most basic form, this event results in disastrous consequences for multiple parties, markets, or individuals and are characterized as extraordinarily rare in frequency, yet are seemingly predictable in retrospect. In the foreign exchange space, the most noteworthy of these events in recent memory was the Swiss National Bank (SNB) crisis which roiled currency markets back on January 15, 2015.During this in Read this Term.