The Swiss Franc Floor, 2015

A central bank promised a floor for three years, repeated the promise weeks before abandoning it, and moved a major currency thirty per cent in minutes.

What happened

  • September 2011 — with the franc surging as a safe haven, the Swiss National Bank announces it will not tolerate EUR/CHF below 1.20 and will buy foreign currency in unlimited quantities to defend that floor.
  • 2011–14 — the floor holds. Volatility in the pair collapses; the level becomes a background assumption in countless positions and hedges.
  • Weeks before — officials publicly reaffirm the policy as a cornerstone.
  • 15 January 2015 — the SNB abandons the floor without warning. The franc appreciates by roughly 30% within minutes; liquidity effectively disappears during the move.
  • Immediately after — retail brokers whose clients were leveraged short the franc face losses beyond client equity. Some, including Alpari UK, fail; others require emergency capital.

The mechanism

  • A defended floor suppresses measured volatility — and measured volatility is what risk models, margin requirements and position sizes are built on. The calm was a policy, not a property of the market.
  • Stop-loss orders are instructions, not guarantees. In a gap there is no price between the trigger and the fill; orders executed far below where clients expected.
  • Leverage sized for a 1% day met a 30% one. Losses exceeded client deposits, converting a market event into a broker credit event.
  • The exit had to be a surprise. Any signal would have been front-run, so the policy was, by necessity, defended right up until it was abandoned.

What it teaches

  • Pegs and floors do not reduce risk; they postpone and concentrate it. Low volatility inside a band says nothing about the move when the band goes.
  • Size positions for gaps, not for daily ranges — the position-sizing calculator assumes your stop fills; assume once that it does not.
  • Official reassurance is not information. A central bank defending a policy cannot warn you before ending it.
  • Know your broker's balance sheet if you use leverage: negative-balance protection matters only if the firm survives to honour it.