Impact of the SNB’s removal of the currency floor

Jarratt Davis

Special Consultant to the FPA
On the 15th January 2015 the Swiss National Bank (SNB) shocked the markets by announcing the end of their defence of the 1.2000 floor on the EURCHF pair.

This special blog post will shed some light on what it all means and explain why the markets reacted so violently to the announcement and how we should be trading the CHF moving forward.

What was the floor?

For those of you still confused about why the markets sold off and why the Swiss Franc become in such huge demand within a matter of minutes, we need to go back to 2011 and a decision that the SNB made to stop the EURCHF currency pair falling below 1.2000.

The bank wanted to stop traders investing into CHF, which has been viewed as a sound currency and also a very good haven during times of uncertainty because this would lead to it strengthening over time and creating a drag on economic growth. A strong currency also poses a problem for Swiss businesses exporting to Europe and the rest of the world.

Instead of adjusting interest rates the bank decided to impose a cap on the value of its currency.

To simplify the explanation, each time the markets were selling the EURCHF currency pair towards the 1.2000 level (Buying CHF) the bank would step in and inject billions of Euros into the market whilst selling CHF to stop the move going any further, and keep the price above that crucial 1.20000 level.

This deterred the market from buying CHF in any great volume because of the fact that they would be trading directly against a central bank, who can basically print money in unlimited amounts to achieve their goals. Not many traders are brave enough to go head to head like this, and so the floor held relatively well.

The situation was that CHF was a solid currency that was attractive to investors during times of uncertainty so there was always a demand lurking behind the scenes but this was countered by the floor, which the bank repeatedly reinforced by stating that they would defend it ‘with the utmost determination’.

This was enough to convince the markets that the floor would be intact and that the EURCHF would remain about 1.2000 for the foreseeable future.

What happened?

On the 15th January 2015 they suddenly announced with no notice that they were no longer defending the floor, effectively clearing the way for a huge sell off by large traders of the EURCHF pair along with pretty much every other CFH based pair.

The sudden nature of this announcement and the fact that only a few days prior to this they had reinforced their determination to defend it, caused extreme panic in the markets, and probably one of the largest single day moves of a liquid currency in the history of floating exchange markets.

The EURCHF pair dumped around 30% in just a few minutes with other pairs following along. The currency gained as traders took advantage of this and others panicked.

The moves caused chaos on many traders accounts, wiping out those that were trading against the CHF with even small amounts of leverage. This set off a chain reaction with many brokers seeing their client accounts actually go into a negative balance because they simply did not have enough time to enact a margin call, as is the standard process.

As per the rules of conduct for many regulated FX brokers this became the broker’s debt and the companies themselves were required to pay it. In many cases the broker simply didn’t have the funds to cover this unexpected shortfall and were forced into insolvency.

Many large, well known, brokers suddenly ceased to exist in a matter of hours. And traders lost their entire investment on a single position.

The reason that the move was so harsh was simply because the SNB had been so incompetent with their handling of the situation, deciding to pull the rug without notice rather than a more cautious approach to eliminating the floor in a controlled manner over time.

The likely reason for this was panic within the bank at the possible scale of the upcoming QE programme to be announced by the ECB on the 22nd January 2015. They felt that the huge sell off of the Euro that will follow such an announcement made the floor impossible to defend over the coming weeks.

Effectively, the world’s largest buyer of Euros has just exited the market because of their concern over just how big the QE programme from the ECB will be and the downward pressure this will place on the Euro currency.

The nature of their exit suggests that their concerns were very serious and they felt it was better to cause the chaos that we have seen over the past 48 hours than go ahead and fight the market any longer.

What happens next?

For all of you with money inside brokers that have gone insolvent, the first thing to do is check whether or not your money was held with company funds or in segregated accounts. Most good brokers will hold it separately, in which case you should receive your funds back in due course.

In the UK, traders are also protected from the broker going out of business by the financial compensation scheme which compensates any losses (To broker insolvency) up to £85,000 per institution.

You can find out more about that here: Deposit Protection - Financial Services Compensation Scheme | FSCS

Not all brokers have been effected in a negative way so the best thing to do is contact them to assess the situation, while keeping a very close eye on financial news channels for any updates that are released.

If you were leveraged and lost your entire account this is a terrible time that is unimaginable, and you have my deepest sympathies. This whole situation was completely avoidable and blame should be squarely placed with the SNB and the way in which they handled this whole debacle. It truly was a complete shambles from the bank who have now lost all credibility with the markets. Unfortunately there is not much to be done, other than either moving on or starting again.

If you still have funds and are wondering how you should be viewing the CHF now and if there any opportunities from it I will go through some scenarios now.

Can we trade this?

The situation is that the CHF has gained value to a huge degree, and there will be question marks about whether or not it has appreciated too far too fast and most importantly whether or not there will be a significant retracement.

With QE looming I feel that EURCHF is in for a very bumpy ride with limited hope for any kind of viable recovery from present lows, in fact the risk is for further downward pressure over the coming weeks.

Other currencies however, look a little more appealing.

The USD for example is a very strong currency right now and as the Fed move closer to hiking their rate, and the SNB hold a negative rate (It is currently -0.75%) this is a clear divergence which the market could be focusing on over the coming weeks. This could provide a rationale for a recovery on the USDCHF pair back up towards the 0.90’s in the longer run.

Other opportunities could be found on further currencies that are looking at rate hikes in the coming year, for the same reasons, think NZD and GBP especially.

These pairs could become the basis for excellent carry trades over the coming months which pay a very healthy overnight swap to go along with the inevitable capital appreciation from those extreme lows.

Right now we need to focus on the fact that volatility is so extreme, and this makes all CHF trades a no go for me.

I will wait until the average daily range of the pairs returns back to below 150 pips, and is sustained for at least a week before risking any trades of that nature.

The most important thing is that no one really knows what the ‘fair price’ of the CHF pairs are because they have been artificially suppressed by the SNB for so long. So any trades that you do decide to take have a huge potential for profit, but until volatility slows down stop losses should be used and extreme caution should be applied.

I am not trading these pairs right now for the reasons above, but when I do start looking at them again these are my basic thoughts at this time.


In conclusion, this has been an unprecedented week with extreme moves that we may never see again for a very long time.

The purpose of this post was to give you an explanation of what happened, what you can do if you have been effected and a possible trade plan for the aftermath once volatility has died down.

I hope it helps and I will try to help out with anything I can in the comments below at this challenging time.

P.S - If you want to learn more about how I trade, check out this link below

Forex Peace Army - Jarratt Davis
Last edited by a moderator:



Well thought out conclusion, as you said this has been an unprecedented week with extreme moves that may have never see before, but us older traders have seen it a few times during are trading careers and one hope we don't see this again for a long time.

The post gives a good explanation of what happened since the SNB broke the Euro tie, on what traders can do if they have been effected and a possible trade plan for the aftermath once this volatility has died down.

I am with you in hoping your blogs helps the less experienced trader who have never been though this before and offer my help with anything I can in the comments below at this challenging time.

FxST - The Art of successful trading
translation to portuguese

Can i (my son) make a translation to portuguese?....and post it facebook..of course with your name
Excellent coments


thank you Jarratt as a new to this and trying to get a handle on it you have explained in a very clear concise that even I can understand it well done

Marketjoy Trader

Private, 1st Class
Thanks Jarrat. I would like a clarification? Were these losses aggravated by not using stop losses or that stop loss are usually of no effect at times like this?
Jarrat, I know this may be a little offtopic, but any thoughts on EURUSD for now? Should we take a position hoping for a weak EUR (due to QE) and a strong USD (rate hikes)? If so, where should the pair be heading To in 3, 6, 12 months from now?

Thank you.


Sergeant Major
Thank you for your explanations re this SNB situation and your kind understanding words are appreciated.

Jarratt Davis

Special Consultant to the FPA
Thanks Jarrat. I would like a clarification? Were these losses aggravated by not using stop losses or that stop loss are usually of no effect at times like this?

Hi :), Stop losses would of been of little consequence on this occasion as there would of been no orders to fill your stop down past 1.20, safest thing you can do is just avoid leverage so that the market doesn't catch you out on occasions like this :)
Last edited by a moderator:

Jarratt Davis

Special Consultant to the FPA
Last edited by a moderator: