The Broker model is the heart of Wall Street. Brokers take a risk-free fee for executing a transaction. It has been a wonderful cash cow. As this book asks, “where are the customer’s yachts?”
So why have many foreign exchange brokers gone bankrupt (and others lost most of their equity) after the Swiss National Bank (SNB) dropped their peg to the Euro, thus sending the Swiss Franc soaring by 30% in a matter of seconds?
The answer (as usual when discussing Wall Street crashes) is…leverage. Historically Fiat currencies move against each other by only a small % each day. A 1% swing in a day is headline stuff. So speculators make money on small changes by leveraging (borrowing to amplify the trade). Brokers vary by how much leverage they will offer (this site has the basics). A swing of 30% means that speculators who assumed the Franc would…
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