“Thanks to the Bank of Switzerland trading in the currency markets will become less risky.”
Forex Magnates reached out to Igor Volkov, president of the international financial company MFX Broker, who shared his timeline of key events leading up to “Black Thursday” along with tendencies and innovations in the field of forex.
As already mentioned by Forex Magnates, the unprecedented volatility of the exchange rate of the Swiss franc due to the events of Black Thursday shocked the trading industry, causing considerable damage to many of its participants, such as traders who were not able to prevent the risks of trading franc pairs on time and broker firms, some of which even ended up on the verge of bankruptcy.
Hundreds of thousands of traders, seeing the negative balances in their accounts, rightly feared that other than the losses incurred, they would also have to extinguish this debt. However, among brokers there were those who displayed truly “parental” care for their customers and took the expense of the nullification of their customers’ deposit debts upon themselves.
One of the first companies to dare to take make such an unprecedented move was MFX Broker, which has already been repeatedly discussed by Forex Magnates. Now that the fever related to the franc has somewhat died down, we decided once again to talk to its President Igor Volkov to find out not only his opinion on these events, but also and more importantly the prospects of the development of forex in the near (and far) future.
1. What happened with the Swiss Franc has affected different brokers differently. Was MFX Broker prepared for such volatility, and, as a result, how has this event reflected on the work of your company? Why were other brokers not as lucky in this respect?
I shall not discuss the work of my colleagues, but only what happened in our company.
Rumours of the possible development of events had been around for a long time, and so we were prepared for unexpected behaviour of the market, although it is unlikely anyone could have foreseen that the effect of the Swiss National Bank’s decisions would be so powerful.
It was possible to decrease leverage to 1/50 and even 1/10 beforehand as many brokers did, but in this case there would be a large risk of closing many current transactions of clients due to the inability to ensure marginal requirements. However, MFX Broker always tries to give priority to ensuring a comfortable working environment for its clients, which is why we did not make such a move.
2. So what did you do then?
Nothing, actually!
3. What do you mean?
For many years now, our company successfully runs a risk-management system, which automatically intelligently distributes client volumes between suppliers of liquidity and aids the timely receipt of signals in the event of any new risks. This is why the situation with the Swiss Franc became merely a working moment for us, although, admittedly, a quite serious one. Yet even this test was passed with honour by our risk-management system.
In addition to the classic scheme of connecting liquidity to our trading systems through ECN and bank accounts, we actively use the Prime Brokerage model, where the institutional broker acts as the supplier of liquidity. Besides allowing us to immediately aggregate liquidity from several ECN systems and provide the best prices to our customers, we are also able to distribute risks between our accounts, for example by redirecting all the CHF currency pair orders to one account and so securing the rest of the company’s accounts.
As a result, only one of our accounts ended up with a negative balance which our Prime Broker reset the very same day, in the hope that we will immediately continue to display high trading volumes with the use of its liquidity.
4. So did you meet the expectations of the Prime Broker?
I believe that yes, we did. Judge for yourself – we paid off all the debts towards the company of clients who have incurred losses due to these events. At the same time, the winning side was paid over $2.5 million in profit, which, we hope, will further increase the loyalty of our customers.
And, of course, we did not neglect the affected clients of other broker firms and offered them an unprecedented no-deposit bonus of $100, after which just in a couple of days over 1000 new accounts were opened in MFX.
5. In your opinion, how – positively or negatively – has the decision of the Bank of Switzerland reflected on the forex industry?
At first glance, it seems as if these events do not bring anything good for the clients. After all, despite the huge profits for some, this has led to the loss of colossal funds for others. The more unpredictable the behaviour of the market, the greater the risk it presents, which means it loses its appeal. After these events even traders with many years of experience have become particularly alert.
6. And what could be the consequences of such alertness?
Regarding brokers, at first many will begin to make new offers and improve trading and deposit conditions. In general, they will do everything they can to avoid a decrease in trading volumes and will also try to compensate the incurred losses.
But in the longer term, it will cause brokers to reconsider their attitude towards risk. It is unlikely that someone will start to secure their risks or shift them to the client, causing the latter to pay off the negative balance. But it can be expected that leverage will be decreased and minimum deposit requirements will be increased. As a result, trading in Forex will become not only less risky, but also less accessible.
7. Does this mean that the number of traders will decrease?
It may seem as if I am contradicting myself but I think that their number will only increase. As for the prospects of Forex, one ought to understand that the world economy is going through hard times – unemployment is rising everywhere and the wages of even highly skilled specialists are decreasing impressively. In such circumstances people begin to look for ways to compensate for their losses, they look for new sources of income and this is where our industry comes to the rescue. This may sound somewhat over the top but Forex is beginning to play an even more significant social role in the life of our planet, not only bringing people hope for a better future, but also providing millions of real jobs.
Our company alone has over 600,000 clients and 50,000 partners in more than 120 countries, which is comparable to a very large manufacturing concern. Yet MFX is not by any means the only broker in the industry.
8. Speaking of the social role of forex, I have to ask – what exactly can people in a difficult financial situation without significant financial means count on from cooperation with you?
There are quite a few opportunities to improve one’s situation – deposit bonuses reaching 200%, regular competitions among traders with a total prize fund of half a million dollars, loyalty schemes and aforementioned partnership programmes, allowing one to receive sizable income with virtually no personal investment.
All of these areas are constantly evolving and we try as much as possible to take into account the wishes of our clients so as to make their trading more comfortable and effective. And so today we offer anyone who wants to replenish their budget with the aid of forex our new innovative service MFX 2.0. This is an interactive multifunctional environment that not only lets you trade and copy transactions based on the MT4 platform, but also combines in itself the experience and intellectual potential of thousands of traders from the whole world. If you like, it is simultaneously a social network and a super-brain.
9. On the topic of innovation, how do you see the future of forex from a technical point of view?
It is clear that forex trading in its present form is a product of scientific and technological progress. Just 25-30 years ago, in the absence of high-speed internet and powerful personal computers, something like this would have been simply impossible to imagine. Yet now nobody is surprised by the possibility of opening and closing transactions in split seconds and controlling tens and hundreds of trading positions through mobile devices anywhere in the world.
Speaking recently at the Davos Forum (we have started off with Switzerland and now returned back there, smiles Igor Volkov), the executive chairman of Google, Eric Shmidt, for example, claimed that in the near future the Internet in its present form will disappear and something far more efficient will take its place. It is quite possible that in a decade or so, we will be able to make transactions on the foreign exchange market without any help whatsoever from computers or mobile gadgets by simply sending commands from our brains directly to the broker. Are these merely fantasies? For the moment, yes. But do not forget – forex is not simply keeping pace with progress, but is one of the most dynamically developing and knowledge-based industries. This is why what may now seem to be a fantasy may become an integral part of our lives tomorrow.