Exclusive: CFDs Brokers Shed Millions on Bitcoin Cash Flash Action

The carnage across Bitcoin and Bitcoin Cash markets late last week delivered massive arbitrage opportunities.

Last week, Finance Magnates extensively reported about the temporary blip in confidence in Bitcoin as the SegWit2x fork got canceled. Bitcoin Cash was the principal beneficiary of the resulting uncertainty in the aftermath of the announcement, increasing more than five-fold over the span of about 48 hours.

While prices have been fluctuating wildly, brokers that have been offering CFDs on the product have been hit pretty hard by Bitcoin punters. Speaking to Finance Magnates off the record, several brokers that provide Bitcoin cash CFDs shared that the day after the fork got canceled was a mini-Black Thursday. The event highlights the big risks associated with offering leverage on cryptocurrencies.

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The firms have had to credit the accounts of their clients with additional funds while losing a lot due to arbitrage opportunities. Total losses on Bitcoin Cash for the CFD brokerage industry were probably as high as several million. Due to the confidentiality of the matter, we cannot share the names of the brokers, but they are not amongst the smallest in the industry.

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Existing Safeguards Not Enough for Cryptocurrencies

Risk-management settings used by brokers have failed to provide adequate protection to firms. While the market has been widely fluctuating, to the tune of several dozen percent in less than a minute, trading systems are not well prepared for the volatility.

The CEO of Interactive Brokers, Thomas Petterfy, made a point yesterday, stating that the inherent risks from cryptos to the real economy become substantial with the launch of Bitcoin futures. If retail brokers that provide CFDs are any point of reference, their exposure to cryptocurrencies already costs some dearly.

Not to be a moralist here, but it seems that brokers that decide to offer exotic cryptos better prepare for unprecedented moves. Even low leverage proves to be quite dangerous for brokers, let alone their clients.

As Bitcoin is currently trading around all-time highs, uncertainty around the SegWit2x fork may cause additional volatility in the coming hours, and perhaps days.

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