From the archiveCase study · Jan 20155 min read
The day the Swiss franc floor broke
The Swiss National Bank scrapped its 1.20 floor under EUR/CHF without warning: the pair fell almost 30% in minutes, Swiss stocks closed 8.7% lower and leveraged FX brokers were left with hundreds of millions of dollars in client losses.
On 15 January 2015 the SNB scrapped its 1.20 floor under EUR/CHF without warning, and the pair fell almost 30% to around 0.85 within minutes.
Stop-losses filled far below their levels and leveraged accounts lost more than their deposits: FXCM’s clients owed it $225m and Alpari UK went into insolvency.
EUR/CHF ended the day near parity and didn’t get back to 1.20 until April 2018. From 2018, EU rules capped retail FX leverage and stopped retail clients losing more than they deposit.
The trader’s angle
A currency peg is a promise, not a law of nature: when it breaks, prices gap, stop-losses can’t fill and leverage turns losses into debts.
EUR/CHF, intraday low
0.85
downfrom 1.20 in minutesLows differed across trading platforms because buyers vanished. The pair ended the day near parity, leaving the franc about 20% stronger against the euro.
SNB deposit rate
-0.75%
downfrom -0.25%Charged on banks' deposits above an exemption threshold. The -0.25% rate announced in December hadn't even started; the cut made holding francs costlier.
Swiss Market Index (SMI)
-8.7%
downdown as much as 14% intradayThe deepest intraday fall since 1989: a stronger franc shrinks the value of Swiss exporters' foreign earnings.
FXCM clients' negative balances
$225m
needed a $300m rescue loanMoney customers owed the US broker after losses blew through their deposits, leaving it in breach of its capital requirements.
The SNB promised that a euro would never buy fewer than 1.20 francs. Whenever investors tried to swap euros for francs at that level, it stood ready to buy the euros, paying with francs it created. That’s a .
Stopping your currency rising is the easy direction: the central bank pays in its own money, which it can create without limit. Stopping it falling is harder, because buying your own currency burns through finite foreign reserves (see ).
The catch is cost, not capacity. Every euro the SNB bought sat on its balance sheet and would lose value in francs if the floor ever went. And because the floor looked rock-solid, many traders treated owning EUR/CHF at 1.20 as a near risk-free bet.
What happened
At 10:30 Zurich time on Thursday 15 January 2015, the Swiss National Bank (SNB) abandoned the minimum exchange rate of 1.20 francs per euro it had defended since September 2011, and cut its to -0.75%.
There was no warning. In December the SNB had promised to enforce the floor ‘with the utmost determination’; on 12 January its vice-chairman, Jean-Pierre Danthine, told Swiss television it must remain the cornerstone of policy.
Buyers of euros vanished. EUR/CHF crashed from 1.20 to around 0.85 within minutes. The euro lost almost 30% against the franc, and the pair ended the day near parity, one franc per euro.
Swiss stocks fell as much as 14% and closed 8.7% lower: a much stronger franc makes Swiss goods dearer abroad. Within a day Swiss 10-year government bond were below zero for the first time.
Why it happened
The floor was born in a crisis. In summer 2011, investors fleeing the euro-zone debt crisis piled into the franc as a , driving it close to parity with the euro and raising the threat of deflation. On 6 September 2011 the SNB drew a line at 1.20, promising to buy foreign currency in unlimited quantities.
It worked, but the bill kept growing. Every intervention added foreign currency to the SNB’s balance sheet: by the end of 2014 its currency reserves had roughly doubled, to about CHF 540bn.
Then the big central banks began pulling in different directions. The euro was sliding against the dollar, and the ECB was preparing , which would push it lower still. Holding 1.20, the SNB said, would now take permanent currency interventions of rapidly increasing magnitude. It chose to quit before QE arrived, and by surprise: a central bank that hints it might drop a peg invites a speculative attack.
How it ripples through markets
How a promise became a gap
- 1
Investors flee to the franc
upSwiss francThe euro-zone debt crisis sends money pouring into Switzerland; by August 2011 the franc is close to parity with the euro.
- 2
The SNB draws a line at 1.20
It promises to buy unlimited foreign currency with newly created francs. Traders come to treat the floor as permanent.
- 3
Pressure builds
downEUR/USDThe euro slides as the ECB prepares QE, which would create more euros and push euro yields lower. Holding 1.20 needs ever-bigger purchases of euros, and the SNB’s reserves balloon.
- 4
The SNB quits without warning
downEUR/CHF15 January 2015: the floor is scrapped and the deposit rate cut to -0.75%. With the SNB no longer buying at 1.20, buyers of euros vanish.
- 5
Stops gap, leverage bites
downSwiss stocks (SMI)Stop-losses fill far below their levels and leveraged accounts lose more than their deposits. Swiss stocks slump, as a far stronger franc threatens exporters’ earnings.
- 6
Brokers take the hit
Clients can't cover their negative balances: FXCM needs a $300m rescue loan and Alpari UK goes into insolvency.
Why it mattered for traders
For three years, buying EUR/CHF near 1.20 looked like free money. The floor seemed to cap the downside, so traders piled in with and parked a few below 1.20.
But a stop is an instruction to deal at the next available price, not a guaranteed price. When the floor went, liquidity disappeared and the price jumped straight past the stops: textbook . Highly leveraged accounts lost more than their entire deposits.
Those losses landed on the brokers. FXCM’s clients ended up owing it $225m, breaching its capital requirements until Leucadia lent it $300m. Alpari UK went into insolvency, and Interactive Brokers lost about $120m on client deficits. A peg is a lopsided bet: small, steady gains with a hidden cliff edge.
What happened next
A week later, on 22 January, the ECB announced QE of €60bn a month, to run until at least September 2016 — exactly the pressure the SNB had wanted to escape.
Switzerland paid a price. Growth slowed to 0.8% in 2015 from 2% in 2014, and consumer prices fell. The SNB lost about CHF 23bn that year, mainly because its foreign-currency holdings shrank in franc terms. Its deposit rate stayed at -0.75% until June 2022, and EUR/CHF didn’t get back to 1.20 until April 2018.
Regulators drew their own lesson. From 2018, EU rules capped retail leverage on major currency pairs at 30:1 and gave retail clients negative balance protection: they can no longer lose more than they deposit.
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Sources
- Swiss National Bank — Swiss National Bank discontinues minimum exchange rate and lowers interest rate to -0.75%
- Bank for International Settlements (central bankers' speeches) — Thomas Jordan: The rationale for discontinuing the minimum exchange rate and lowering interest rates
- European Central Bank — ECB announces expanded asset purchase programme
- Federal Reserve Bank of Minneapolis — Abandoning a Currency Peg
- CNN Money — Swiss shock crushes US currency broker
An original summary written from the sources above. Figures are rounded; follow the links for the full record.
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