Guest Post

Last month, we saw a couple of smaller FCA-regulated brokers including LQD Markets go bust, along with what had been one of the larger players in Alpari UK. The details are even now still trickling out, but for those not yet fully aware, what exactly happened to kill these brokers off over night?

The truth is that it was just one single decision and event that wiped an irreparable amount of money from the value of these companies.

On the 15th of January (now informally dubbed forex’s ‘Black Thursday’), the Swiss National Bank took the decision to stop pegging the euro at approximately 1.20 Swiss francs, as it had always informally done so. This decision has a much larger impact than some might have expected, and many were not at all prepared for it in the first place. The markets became extremely volatile, and managed to very suddenly lose these brokers a huge amount in assets; millions in some cases. This was confounded by the fact that a significant portion of their clients also suddenly had accounts in the negative, which could not easily be recouped.

Aftermath

Now, Alpari in particular worked hard to find someone to buy the business, but ultimately the damage had been done. Last week it became clear that there would be no single buyer, likely as the company has never made strong profits, and as a result, the business will be picked apart and we’re unlikely to see it rear its head again. A variety of intellectual property has already been sold off, and the client list will also be auctioned to the highest bidder. Of course this isn’t necessarily a list of much value, as the clients will have the option to simply have their money returned, and there are petitions underway for this to happen as soon as possible.

Liquid Markets is still currently under administration, and working with former clients to a resolution, but as a very small player, it’s not expected that it will see much in the way of success. The company did of course only start trading in May of 2014, and does not have a particularly big client list. A 50% stake in the business was valued at just £500,000.

Events like this highlight the need to choose a reputable broker, ideally ones with negative balance protection, and certainly which properly understand the markets in which it operates.