All Brokers Should Forgive Negative Balances

01/21/2015 9:00 am EST

Focus: FOREX

Given last week's extreme moves in the forex market, Yohay Elam, of, wonders if other forex brokers have followed in the footsteps of this Swiss-based broker that took the exceptional step to clear negative client debt balances. And Yohay outlines what makes this such a smart move.

Swiss-based forex broker Dukascopy took an exceptional step to clear negative client balances.

Dukascopy joins OANDA, which already made a similar announcement in the immediate aftermath. Shouldn't all forex brokers follow?

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Due to the extreme moves that resulted from the removal of the Swiss National Bank (SNB) floor under EUR/CHF, the lack of liquidity resulted in some clients entering negative equity. Dukascopy decided to release these customers from any obligation to cover the negative balance.

Dukascopy also states that it has not canceled or negatively adjusted any trade concluded on January 15, aka Black Thursday.

OANDA said last week: "OANDA did not re-quote or amend any CHF cross client trades. We even took the further step of forgiving all negative client balances that were caused when clients could not close out their positions fast enough."

There may be other brokers that have followed this path. We will update.

All Brokers Should Waive Negative Balances

Who is to blame for the extreme market moves? It is easy to point the finger at SNB governor Thomas Jordan, but, unfortunately, it is unrealistic to claim losses from him, nor from his institution.

So, between the big broker and the small client, who can afford the loss? Yes, that was a rhetoric question.

Let's think in practical terms: the client saw his account wiped out. He already has doubts about returning to trading forex. Let's say he does want to deposit new funds and return to trading.

Will he first cover the negative balance and then deposit even more money with the broker where he lost the funds? How easily can the broker recover the funds anyway?

Or will he start fresh with a new broker that announced a waiver of a negative balance?

By Yohay Elam, Founder, Writer, and Editor,

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