Article 07 · EUR/CHF · Currency Pegs · Leverage · Market Microstructure
Francogeddon
The Day the Swiss National Bank Broke the Market
At 10:30 in the morning on 15 January 2015, the Swiss National Bank published a two-page press release. Within twenty minutes, the euro had lost almost a third of its value against the franc, several of the world’s largest retail forex brokers were insolvent, and an $830 million hedge fund had ceased to exist. Traders christened it “Francogeddon.” It remains the cleanest demonstration in modern markets of what happens when a price everyone treats as guaranteed turns out to be a promise.
The Setup
Why the SNB Drew a Line at 1.20
The story begins in 2011, at the peak of the eurozone debt crisis. With Greek default on the table and contagion spreading to Italy and Spain, capital fled the euro for the nearest , and the franc went vertical. From EUR/CHF 1.50 in 2008, the euro slid toward parity by August 2011. For an economy earning most of its living from exports, this was the watchmaker’s nightmare from the previous article, playing out in months instead of decades: collapsing export margins and imported deflation, simultaneously.
On 6 September 2011 the SNB stopped leaning against the wind and built a wall: a at EUR/CHF 1.20, defended (in the SNB’s own words) with “the utmost determination” and in “unlimited quantities.” The mechanics were the ones only a strength-fighting central bank can deploy: any time the euro threatened to slip below 1.20, the SNB printed francs and bought euros until the price obeyed.
And for three and a half years, it worked. The market tested the line, the SNB absorbed everything thrown at it, and EUR/CHF sat pinned just above 1.20. The floor came to be treated not as a policy but as a physical constant, which is precisely what made its removal so destructive.
The Break
Impossible Math: Draghi’s Printing Press
What killed the floor was not speculators. It was another central bank. Through late 2014 it became clear that the European Central Bank, fighting deflation, was about to launch full-scale : a bond-buying programme that would ultimately exceed €1 trillion. Mario Draghi was preparing to print euros at industrial scale, and every freshly printed euro looking for a safe home would arrive at the SNB’s wall.
Consider the arithmetic from Zurich. Defending 1.20 meant buying whatever volume of euros the market wished to sell. Against ordinary crisis flows, that was already a balance sheet approaching Swiss GDP. Against a €1 trillion printing programme, the commitment became open-ended: a small country underwriting the depreciation of a currency bloc twenty times its size. The SNB would be swapping francs for a depreciating asset, in unlimited amounts, for as long as the ECB cared to print.
So on 15 January 2015 (one week before the ECB’s QE announcement) the SNB abandoned the floor without warning, softening the blow only with a deposit rate cut to −0.75%. Secrecy was not cruelty; a telegraphed exit would have invited the entire market to front-run it. But the consequence of three years of “unlimited” promises ending in a two-page statement was a market with no plan B whatsoever.
The Evidence
Twenty Minutes, Minus Thirty Percent
A year of EUR/CHF, daily. On the left, the flatline just above the dashed 1.20 floor: the wall holding. Then 15 January 2015: no descent, no sell-off, just a void. The pair did not fall through 1.19, 1.15, 1.10. It ceased trading near 1.20 and reopened near 1.04, touching 0.86 intraday. Every price in between simply never existed.
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The Mechanics
Why the Stop-Losses Failed
To understand the carnage, start with how the trade looked the day before. Going long EUR/CHF at 1.20 was considered the closest thing to free money in retail finance: the SNB had guaranteed the floor, so the downside was “capped” and brokers cheerfully offered of 100:1 and beyond on the pair. Risk was managed (everyone believed) by the stop-loss order.
But a stop-loss is not a guarantee. It is an instruction to sell at the next available price once a level trades. When the floor vanished, there was no next available price anywhere near it: every buyer between 1.20 and roughly 1.04 had been the SNB, and the SNB had just left the market. The price , and the stops filled a full 13% below where their owners believed their risk ended:
Long €100,000 at 1.20 on $1,000 margin (100:1 leverage)
the “riskless” retail trade of 2012–2014
Stop-loss at 1.19: intended maximum loss ≈ $833
one centime of protection, on paper
Actual fill at 1.04: loss ≈ $13,300, 13× the account
no buyers existed between 1.20 and 1.04; the stop filled where liquidity reappeared
A trader with $1,000 of margin did not lose $1,000. They lost $13,300, and since a retail client with a four-figure account cannot pay a five-figure debt, the negative balance landed on the broker. Multiply by tens of thousands of accounts, and the brokers themselves became the casualties.
The Core Failure
The Aftermath
Casualties of a Guaranteed Price
The casualty list read like a directory of retail FX. Alpari UK declared insolvency within hours. Excel Markets in New Zealand shut its doors the same day. FXCM (then the largest retail broker in the United States) disclosed roughly $225 million in client negative balances and survived only through a $300 million emergency loan arranged overnight. Nor was the damage confined to retail plumbing: Everest Capital’s $830 million Global Fund, short the franc as a macro bet, was wiped out entirely.
The deeper lesson outlived the bankruptcies. The 1.20 floor failed precisely because it was trusted: the guarantee attracted the leverage, the leverage concentrated the risk, and the risk detonated the moment the guarantor withdrew. A price floor maintained by policy is a promise, not physics. And when the entity making the promise is the only buyer at the price, the promise is the market. Remove it, and there is nothing underneath.
The irony is that the SNB’s wall was overwhelmed by the very force that built it: the franc’s safe-haven pull. What makes a currency attract that kind of unconditional global demand in the first place? That is the subject of the next article: the anatomy of a safe haven.
Key Numbers
3.5 yrs
Lifetime of the 1.20 floor
September 2011 to January 2015: defended in “unlimited quantities” until it wasn’t.
−30%
EUR/CHF collapse in minutes
From 1.20 to an intraday low near 0.86, closing around 1.04, with almost no trades in between.
13×
Loss vs. account on a stopped-out 100:1 long
A $1,000 margin account filled 16 centimes through its stop owed ~$13,300.
$300m
Emergency loan that saved FXCM
Alpari UK and Excel Markets were not saved; Everest Capital’s $830m fund was erased.