FX Black Thursday Explained

Alan Penny

4 May 2021

6 min read

A Black Swan is a name attached to the eccentric occasions that are past what is usually anticipated of a situation and can have severe outcomes. Such events are described by their extraordinary irregularity, nearly catastrophic impact, and far-reaching belief that they were obvious in retrospect. For instance, the 9/11 attack is considered the perfect example of the Black Swan event. However, today we focus on another occurrence within the Black Swan category, that is Black Thursday of September 2015.


Financial markets are vulnerable to all kinds of events. Most of the largest crashes that have occurred in the history of stock and investment markets came unexpectedly though they were still modelable. However, that one case with January 15th, 2015 European currency market was essentially an unpredictable Black Swan event.

Since September 2011, the Swiss National Bank has been using a cap of 1.20 EUR per Swiss Franc. As per their initial decision, the cap served as a protection of the local economy from an overvalued CHF. Allegedly, two events contributed to SNB’s decision to abandon the cap. Firstly, it was falling oil prices at the end of June 2014, which in turn decreased the value of the Russian rouble, trading at 76.5 roubles to the Euro. The speculations following the event led to the green light to start quantitative easing that would drive the euro even lower in relation to the dollar. Furthermore, the anticipation of the results of Greek elections contributed to the thought that investors would start looking for safe havens, such as stable Swiss Francs. SNB would have to intervene once again to keep the ceiling on its currency, which the bank apparently did not wish. But only 3 days prior to Black Thursday, SNB still held the position that it would protect the cap on Swiss Franc.

Black Thursday

After 4 years, all of a sudden, the Swiss National Bank changed its mind and blew the currency market within several minutes.

On January 15th of 2015, SNB abandoned the above-mentioned exchange rate cap on CHF. Investors on the Swiss stock market reacted immediately. As soon as they made an announcement that the cap was abolished the value of EUR crashed within 5 minutes. In most of the European region, the decision instantly triggered immense bank losses for major currency dealers.

Impact on exchange rates

After two minutes from the statement, the Swiss Franc was already trading 11% higher against the Euro. It gained further 19% after seven minutes and continued to appreciate until it reached 41% appreciation, whereas the Swiss Franc reached the peak of 0.85 Francs per Euro. Just a day before, Euro stood at 1.2 Swiss Francs.

As a result of the SNB’s decision, the Swiss Franc increased in value by 25% against the US dollar as well, at which point the dollar was trading at 0.8900 CHF. The 40% gain over the Euro of Swiss Franc along with the strengthened value against the dollar within such a short period of time caused unprecedented losses for the brokerage industry.

Losses within Brokerage Industry

Total losses of the brokerage firms are estimated to be well over 1 billion US dollars. Retail broker of the United Kingdom Alpari UK went broke immediately after a day from the announcement. Deutsche Bank officially declared its losses of over 150 million US dollars due to the severe volatility of the Franc to the media. Interactive Brokers also stated that their losses surpassed 120 million US dollars.

Forex Capital Markets – FXCM

Furthermore, one of the largest online platforms and one of the most popular currency trading brokers FXCM Inc FXCM.N announced that they were in a serious breach of regulatory capital requirement since their clients have lost more than 225 million US dollars. The shares of FXCM Inc lost 90 percent of their value in pre-market hours on Black Thursday anticipating serious threats for the regular trading session on the NYSE.

The management of FXCM Inc had to rush to their offices and go through company books till the very morning on Friday in order to figure out how to help the free fall of the company stocks. They managed to rebound from the premarket losses, however, FXCM.K still remained 70% down from Thursday’s close.

A back-then parent company of FXCM, Global Brokerage Inc filed for bankruptcy after several months as its shareholders lost more than 98% of their investment during the crash and the company was eventually banned in the United States. FXCM Group then was acquired by Leucadia National Corporation and remains as the parent company of FXCM till today.

Hit on Equity Markets and Economies

Consequently, major European equity markets also experienced a significant hit. The overall Swiss benchmark stock index decreased by over 10% in the given month.

The Swiss Market Index was down to 8,400.61 which was an 8.7% fall, the worst position after 1989. The major stocks experienced a strong downfall, such as Swatch Group AG which was trading down by 16%, Actellion LTD. lower by 14%, Nestle shaving off 6.2%, and even JPG Morgan Chase & Co. declining by 3.5%.

In Greece and Poland, over 650 000 households were having CHF-dominated loans. In Greece, the total loan amount in CHF was estimated at 800 million Euros. Black Thursday event led to non-performing loans in Greek and Polish banks.


Hundreds of brokers suffered from the Black Thursday events and tens of them went broke on the same day. While others had to deal with the long-term effects associated with the extreme volatility of the Euro and Swiss Franc. However, surprisingly not all brokerage firms suffered.

GAIN Capital Holding Inc. in fact, generated massive profits on Thursday and eventually managed to win market share. The stock prices of the company were up by 2.9 percent on January 15th, selling at 8.52 US dollars.

How Switzerland was affected

The overall economy of Switzerland was hurting as well. The risks of increasing inflation led to major speculations within the country. The exports were also hurt badly due to the rapid strengthening of the Swiss Franc. It went down by 2.6% in 2015. Furthermore, the Swiss National Bank announced that it lost around 50 billion Swiss Francs in the first half of the year due to losses on foreign exchange positions. Additionally, the tourism industry was affected significantly, reducing the number of visitors to the country due to the increased exchange rate of EUR to CHF.

What can we learn

It is important to understand the causes and effects of Black Thursday, especially for the traders and brokerage firms, since more than 90% of currency trading involves brokers as counterparties. This particular Black Swan event caused the introduction of a view that Negative Balance Protection is a necessity within the brokerage industry. On 18th September 2017, the CySEC introduced negative balance protection on a per-account basis, meaning that in case the trader has two leveraged accounts, the funds on one account can be used as negative balance protection. However, on the whole, the trading account cannot have a negative balance.

It is important to always check the insurance of the broker when going through the broker review. Many brokers offer insurance amounts from $100,000 to millions of US dollars. The insurance is intended to cover any losses caused by unprecedented and force majeure events. Since the 2015 franc-euro crisis, more and more brokers began to increase their insurance pool.

Furthermore, traders understood that sky-high leverages are not necessarily in their favor. High leverages with currency pairs is never a good idea as it is a clear binary risk and the market is overly volatile. As a result of the Black Thursday crash, ESMA updated regulations on maximum leverages applicable to various trading products. For instance, cryptocurrency products cannot be leveraged higher than 2:1 anymore.

You should always check the fundamentals of the currency pairs you are going to trade with. It would be better to avoid trading pegged currencies at all if you want to be completely safe from potential Black Swan events.

Written By
Alan Penny

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