This article was written by Tom Higgins, founder and CEO of Gold-i, a global market leader in trading systems integration.
A currency crisis similar to that of last January’s Swiss National Bank (SNB) crisis won’t ever happen again. Of course, there will be other financial crises but nothing to the scale that we experienced last year because no other major currencies are pegged.
For other situations which trigger financial crises, we tend to get advance warnings that decisions are imminent and therefore the markets have time to react. Last January’s events were completely unexpected.
Brokers are in a stronger position
We have certainly learned lessons from the black swan event and although the fallout lasted for seven or eight months, it is now all behind us and brokerages are in a stronger position moving forward.
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One of the biggest legacies of the SNB events is the requirement for a brokerage to have really strong risk analysis
Beforehand brokers assumed there was no risk if they were agency trading and covering their trades in the market. They now realise that risk is a concern and that they need to pay attention to the leverages they give to clients and get from their liquidity providers.
One of the biggest legacies of the SNB event is the requirement for a brokerage to have really strong risk analysis and risk monitoring tools – and by reducing risk, brokers can make a lot more money.
One other positive change I have noticed post- SNB event is that there are now far fewer poorly funded start-ups entering the market. Today’s start-ups are well funded companies that can weather risk storms.