On Jan 15 – 2015, the EURCHF made a 2,300 pip move, the brokers that were not implementing proper financial management rules for their brokerages were caught with their pants down, or to better put it their pants were pulled down by the SNB – Swiss National Bank. This exposed these brokers for their shady tactics and better yet it took these brokers under the water (if there is anything like that) and bankrupted them.

These scam tactics were well kept secrets but now due to the collapse of various brokerages all these scam tactics were exposed, some tactics may not be outright scam, but the fact that these tactics can take down a broker we shall list them, these tactics may even be worse than previously known scam tactics .

New Scam Tactic Number 1: No Negative Balance Protection

Before we explain this tactic, let us put you into context of what we are talking about. Let us explain the EURCHF move – All CHF currency pairs made significant moves but the EURCHF was the focus of the SNB – the SNB wanted to maintain an exchange rate of 1.2000 for the EURCHF so that their country’s export goods would be cheaper and affordable for people buying from other countries, because at that exchange rate the Swiss Franc would be considered cheaper. The SNB maintained this currency peg by constantly buying EUROs in the FX market, particularly by buying EURCHF in great number of lots every time the EURCHF reached 1.2000. This maintained the value of the EURCHF at above 1.2000 for a long time. (This is where the trouble started – why? Because it was a sure money making method for speculators on the EURCHF currency – How? Traders would put maximum buy orders at 1.2001 and use maximum leverage on their accounts – leverage 100: 1, after all they were sure the SNB would not let the EURCHF go lower than 1.2000, because that is where the SNB was buying the EURCHF to keep the Exchange rate at above 1.2000. During this whole thing the SNB used a total of 60 Billion Swiss Francs to maintain this currency peg.

Up to this point SNB was on top of their game – but the Euro Zone Central bank decided the wanted to also lower the value of the EURO so that the Euro Exports would become cheaper and other foreign countries would find it cheaper to buy European goods because a cheaper EURO currency means they can get more value for their money when they exchange it for the EURO.

To do this the Euro Zone Central bank – ECB, decided they would embark on a policy of Quantitative Easing — QE. This policy would mean that ECB would start to print money and buy bonds, basically that is what QE is all about – not to go into much detail, the goal of QE is to devalue a currency controlled by a central bank, in this case EURO, so as to make exports of that country (EU Zone) cheaper, second this policy is meant to increase inflation and stimulate growth by driving yield of bonds down so that people can remove their money from these long term assets and start buying higher yielding assets such as Stocks, Land, Property and Invest in Other Profit Making Ventures. This way money will start to flow within the economy.

It is like this: when you buy a water fountain for your home, you get home plug it to the power and the fountain keeps the water flowing down the fountain, but it is the same water that keeps flows within the fountain. This is how a good economy is supposed to be, money keeps flowing and that way everyone gets a share of the money and the money changes hands so many times because people are spending and the economy is generally good because people generally have more to spend because in their places of work, they are making good money because of the same effect of people spending, therefore the people are not worried about spending because tomorrow in their place of business they will get many customers who are ready to spend and in some way this also makes them ready to spend when they patronize other businesses.

But when economies experience slow down, people stop spending and economies stop growing. People stop spending not because they do not have money, but they are more careful when spending their money because they see business as not good and they do not know when people will start spending again and buying from them, so in turn they also do not spend. So now back to our example it like turning off the power in you fountain such that even though the water is still there it is now not flowing – that is what recession or economy slow down does to a country. In this case the Euro Zone was not in recession but their Member Country’s economies were slowing down.

In order to jumpstart the spending process again, an economy can use QE – Quantitative Easing. To do this the Central Bank of that currency starts to print money, and this money will be poured into the economy and this process of QE will start and it will bring some new money into the economy, and people will start feeling there is more money within the economy, and there is more money because new money has been printed and released into the economy. Now that people feel there is more money in the economy they start to spend money again, and not only spending the new printed money, but in the process also start to spend their own money and therefore the money in the economy soon starts circulating the way it should and if the policy is successful after some time the economy start returning to a growth phase and the GDP of that country starts to show growth.

Now back to our EURCHF example: The SNB learned before everyone that ECB – Euro Zone Central Bank was going to start QE and the ECB would print €1.1 Trillion Euros – this information they learned it one week before it was announced. Now to our point the SNB had used 60 Billion Francs to maintain currency peg 1.2000 – that is about €72 Billion Euros, this is also equivalent to half of the Swiss GDP – to maintain this currency peg the Swiss had to keep buying the EUROs to do this – but now ECB has announced they would print €1.1 Trillion Euros, that is €1,100 Billion Euros, the SNB – Swiss National Bank did their math and decided it could not continue to buy the EURO, because the amount of EUROs that would be introduced were to much for it to buy and there the SNB decided that should the QE policy start, then they would be doing zero work because every time the bought Euros to maintain currency peg 1.2000, the ECB would introduce more Euros into the market at an even faster rate than the Swiss National Bank could buy.

So now came the decision that made shock waves so big in the market, that after this decision 2 brokers had filed for bankruptcy, other were seeking bailouts in excess of $200 million because that is what they had lost and now they no longer had working capital and others although big enough had lost $150 million, another $150 million and another $100 million – this were the serious market makers that did not have proper financial risk management policies for their brokerages. Most other brokers had proper risk management policies and were not really affected by this move.

Now this is where the scam tactic of no negative balance protection starts – First of all currencies rarely move more that 1% in a day, that is why brokers offer clients leverage of 100:1 because even with this amount the most amount a currency can move is only one percent therefore there is really no much risk for the broker even if they are giving you this high leverage, the risk is only 1%, and that one percent risk it is not the broker who is taking this risk, it is the trader, the trader takes this risk by putting their deposit down. In case a trader makes a losing trade, their deposit will be the risk capital, if the loss is more that 1 %, then the broker issues a margin call and closes all trades of the trader so that a trader will not incur a negative balance on their account. This ensures that as a trader if you deposit $1,000 dollars with you broker you can only lose $1,000 dollars. But some broker were irresponsible and did not implement this negative balance protection policy, others did not have multiple liquidity providers and therefore when the only liquidity provider they were settling trades with failed to settle their trades they did not have a backup liquidity provider. That is why as a trader you need to trade with a broker that has multiple liquidity providers so as to ensure that your trades at all time are guaranteed of execution.

But on this particular day when the SNB, decided that it would not be continuing with their currency peg, the SNB immediately closed all the positions of orders that were $60 Billion Francs Worth – (This SNB Currency Peg had been there for 3 years – so imagine orders accumulated in 3 years being closes in a matter of minutes). Due to the enormous amount of buy EURCHF orders released at once into the market, the market was overwhelmed, and the market immediately moved 2,300 pips down within a matter of a few minutes. This was a 23 % market move. And at this point the good brokers closed most of the trades early – how? Their liquidity providers noted a large increase in the widening of the spread and immediately and automatically closed most of their orders and the orders of clients of the brokers that they provide liquidity for. Those that had irresponsible liquidity providers, the liquidity providers had no risk mitigation policies and they never closed the orders automatically found they had been caught on the wrong side of this move. The liquidity providers themselves were at no risk(well, sort of), because the losses incurred would be passed to the forex brokers because forex brokers are the ones who have placed these orders on behalf of their clients and it is the broker’s responsibility to ensure that if losses exceed clients’ deposit then the broker closes those orders. But these brokers did not have an automatic negative balance protection policy, so these brokers were caught unawares and by the time the move was complete the broker on behalf of their clients had incurred losses in the 100s of millions of dollars. Those who could quickly look for a big pay day loan did so and settled with their liquidity providers. Those who could not get an immediate pay day loan immediately filed for bankruptcy because they could not even pay the loss they had incurred with their liquidity provider and because they could not afford to pay, they immediately filed for bankruptcy – that why even the liquidity providers were now at some risk because if the broker was not able to pay them off, then the loss was on the Liquidity Provider.

Those brokers that lost these large amounts of money, but did not close down their business, then decided to go after those traders whose accounts had incurred a negative balance – not to mention they ought to have set the proper risk management policies to avoid this, now they want to blame it on the traders. This is the worst scam tactic ever – new one at that.

The tactic does not stop there: these broker started writing to traders who had negative balances in their account to pay that money because it is a debt they owe and they signed in the terms of their agreement when they opened an account. Well, as the author, I do not trade CHF, so I even became aware of this move hours after it had happened. But for those traders who were trading the CHF and were caught on the wrong side and now have negative balances – don’t pay a dime to these scammers that are blackmailing you that you ought to pay them, in fact just open a new account with a new broker that knows what automatic negative balance protection means and one that knows how to put proper risk management and at the same a broker that uses responsible liquidity providers that automatically close such orders when there is a significant unexplained widening of the spread in a particular currency pair.

These brokers failed to protect their businesses using proper risk management and now they want to blame this on the traders – I don’t know if I should scream, or cry on their behalf or teach them money management methods or money management rules or how leverage and margin works so that the next time they can concentrated on doing brokerage business and not going out their in the FX market and over-leveraging and over-trading and when they make losses they start telling traders you are the ones who are going to pay what we lost – To Scammers: If you don’ t know how to scam don’t do it here.

If these scammers ask you to pay – don’t pay a dime do not answer their calls, drop their calls, blacklist their phone number, blacklist their emails – give them a black out. Let them come for you in your country if they can, after all can they afford air fare when they have already lost 200 million and they looking for a pay day loan, they cannot afford, in fact they can barely afford that phone call they are making to you, these brokers cannot even get new clients their scam reputation precedes them, no trader wants to do business with them, and their clients are flying off the withdrawing wands of cash before they collapse and file for bankruptcy with the money of the traders who were left and who were not involved in the EURCHF or any CHF currency cross moves.

If you are a client of these brokers, remove your money while you can and open an account with a broker that offers automatic negative balance protection and one that uses responsible liquidity providers that implement proper risk management policies.

After all these scam brokers that come to collect from traders are employing another twist to get to their clients money, in fact they are employing 2 new scam tactics:

They say if you have multiple account one with a negative balance and another without we are going to take money from you other account or accounts that have money and pay ourselves after all you signed it in our master account opening agreement – Master Agreement? Which one is that? I only signed account opened agreement, now you want to tell me I signed an account opening master agreement? Which one is that?

The second one which is the true scam of the century. a very creative and genius scam that not only goes after the money of those traders that lost, but also goes for the money of those traders that did not lose money on this CHF deal. Here is how they are putting it – Client Funds are held in segregated accounts therefore we cannot touch clients’ funds, but clients should remember that the loss of their fellow clients will be deducted from this segregated account, therefore every client will pay a percent of this loss because this loss will be shared within the funds that are in the segregated account held on behalf of clients – ooouuiii, traders start screaming or crying or both.

Never, have I heard of such HORSE Sh1T, Goodness – now not only did the broker act careless on their business and made losses, they now are asking traders to pay for their irresponsible business practice, threatening traders with legal action, now they are saying the good traders must contribute and pay from their accounts balances for their mistakes of not implementing a negative balance policy to protect traders. These irresponsible brokers are stopping at nothing, if as a trader you have any money with this broker – remove while you can – before another ingenious scam tactic is hatched, take your money now before it is too late and open an account with a broker that offers automatic negative balance protection and one that uses responsible liquidity providers that implement proper risk management policies.

With the EURCHF move of 2,300 pips, this was a 23 % market move, and currencies only move 1 % on average per day. So if a trader had a $1,000 dollars account and had open one lot, with automatic negative balance protection, the trade would only have lost $1,000 dollars when caught on the wrong side of this move. But, this was a 23% market move if 1% is only $1,000 then 23% market move is $23,000 dollars, so for this trader, their negative balance would have been 23K minus trader’s deposit of 1K, that would have been a negative balance of $22,000 dollars – How does a trader repay $22,000 dollars, when all they had in their account was $1,000 dollars.

As a trader who was caught in this move, do not pay, as a trader whose broker you are with was caught in this situation, move to another because it shows your broker is irresponsible along with the liquidity providers that your broker is using. As a new trader who was lucky enough not to be caught by this hullabaloo, only open an account with a broker that offers automatic negative balance protection and one that uses responsible liquidity providers that implement proper risk management policies.

If a broker tells you they will come for you to repay their loan as we have seen on the internet refuse, refuse, refuse do not agree to be intimidated, if they tell you they take you to court, tell them to go ahead – after you cannot be taken to court in America if you are not from America – And then who are these brokers kidding how do you take 10,000 or 20,000 or 30,000 traders to court, truth is that they cannot afford, (even the calls they are making they cannot afford because they are making losses, in fact they have already made a loss )what these brokers are relying on is to see if you get intimidated, do not give them space, do not reply to them, do not even respond – and then let them do whatever they want, for sure if you give them a blackout, there is nothing they can do and they will quietly go away – and soon when all traders refuse to pay, you will hear them filing for chapter 11 bankruptcy after which they stop being a company and thankfully you will never hear from the again.

Scam 2: Plan of Action for Repayment of Borrowed Funds

Does this scam stop, Nooo!

You will hear “plan of action for repayment”, DO NOT, I REPEAT, DO NOT agree to such utter nonsense. Plan of action for repayment, repayment of what, nonsense, utter B.S.

Do not agree to such nonsense, be difficult, be recalcitrant agree to nothing – not only did this broker scam you because they should have protected your account with an automatic negative balance policy but now they want more, where does this scam stop.

Cut all contact with such a scam broker, jump ship and join another broker and start a new account.

Remember you can even agree to pay them and tomorrow they go bankrupt – for this simple reason refuse – if they contact you tell them how do I know if I pay you if tomorrow you will still be there – do not pay.

Remember it goes like this for companies >> Profitable>>Not Profitable>>Broke>>In Debt>>Bankrupt. For Those brokers asking traders to pay negative balances they are already in debt, which is just one step next to becoming bankrupt.

Scam 3: Most Clients Have Already Settled Their Accounts – You are The Only one Remaining and we shall start Dealing with You

Like we said, do not accept anything – tell them to start dealing with you, tell them you will never pay, tell them that money – the negative balance in your account is gone and they will never see it again, ever.

We repeat this again, you can even agree to pay them and tomorrow they go bankrupt – tell the brokers to count their losses and move forward with bankruptcy or whatever.

To all traders, apart from those caught in this hullabaloo, never ever mess with the Swiss CHF, do not trade it on your FX platform, the Swiss are sending a message to the FX market speculators – don’t mess with us or with CHF.

To those traders trading with these brokers, remember these brokers have experienced a significant change in their capital structure and are already in debt and under pressure to repay loans – this means these brokers will become more aggressive in their operations and may start implementing scam tactics such as Auto dealer Plug-in so that traders lose money faster and they make it faster so as to repay their loans and recapitalize – therefore it is best to move from these brokers after all these brokers are not so very ethical as illustrated by their actions – Here is a twist of their own manipulation, where they say “most client have already settled their accounts” the twist is “most clients have already closed their accounts with us and withdrawn their money” – do not be the last one to withdraw your money if you are trading with these brokers.

Scam 4. Requotes Scams

This is why you need to trade with a no-requotes forex broker

Most Brokers will requote traders to the tune of 2 or 3 or 4  or 5 pips, that is common, but as a trader did you know you can be requoted a 100 pips or 1000 pips or to be exact as trader who was requoted by a broker who made losses during the SNB move — his trades were requoted at exactly 2,370 pips. Let us expalin it clearly for you, the trader was trading the EURCHF, his trades were opened, but the trader had stops, the stops were hit and the trades were closed for a small loss. The trader checked his account and on seeing his statements, he was lucky, his stops closed his orders before the SNB 2,300 pips move.

Here comes the scam part, pay attention, after 5 hours, his broker announced that some trades that were executed at the SNB time were subject to be evaluated. This was a great plan to steal from traders so as to reduce the $107 million dollars this broker had lost because they did not put proper risk management for their business, now to reduce this loss the broker must legally steal from the traders, enter scam tactic requote, but this time the requote is not 3 pips but 2,370 Pips.

So after 5 hours the trader came back to check his account on his platform, only to find that his stops had been requoted, and the stops that had been executed at 1.2005 had been conveniently requoted and they had now been executed at 0.9625 after the re-evaluation, meaning that his stop loss was not executed with a few pips loss, his stop loss had been executed at 2,370 pips loss, effectively wiping out his account (conveniently), meaning the broker using the requote scam tactic had just stolen the trader’s total account balance and blamed the SNB CHF move volatility.This way the broker reduces their $107 million loss by swallowing the balance of this trader along with all the other numerous traders whose account balances were adjusted conveniently to cover the brokers loss — which to say the least was just daylight stealing from traders. This broker, or should I say this bank because it is a bank that provides services of retail FX trading is being taken to court by traders for this scam requote tactic.

I repeat again. This is why you need to trade with a no-requotes policy forex broker