The life and death of Alpari UK – A casualty of the SNB peg removal
Alpari UK shut down following the SNB actions on January 15
Alpari was founded in the city of Kazan, Russia in 1998 by several Russian investors. It offered online trading of forex, CFDs, and precious metals to the general public. The name ‘Alpari’ was chosen to give the company a friendly and fair impression, because in Latin it means ‘parity’ or ‘fair price for a product’. The trading was conducted through some very basic electronic trading platforms and charting software which were available at that time. Different offices were opened in several countries and in 2004, Alpari UK was established. It was part of the association of global Alpari companies but still a separate company. While all the executives were the same, Alpari UK was independent from the mother company.
After the establishment of Alpari UK, the new company got a licence from the UK regulatory authority, the Financial Conduct Authority (FCA) in 2006. This allowed them to open other offices and branches in several European countries. Alpari UK was operating with high professional standards and the performance was pleasing for their customers. I was one of their clients and having traded with them for about eight years, I can say that they were one of the 15 brokers in the industry. The account opening process was quite fast, execution wasn´t bad, and the funding/withdrawal process was very fast; the funds would arrive in your account the next day after filling the online forms. They were quick to adopt the MT4 and the MT5 platforms when they came out and offered many different new features and services to their clients. So, the word spread fast across the trading community and the client base started to expand. The credibility of FCA regulation, which sets some of the highest standards for its members, enabled them to build even more trust and expand their client base. It allowed them to open subsidiaries of Alpari UK in other non-EU countries, such as India and China (2008) with offices in Mumbai, Shanghai, Frankfurt, and Tokyo in 2011.
By 2012, Alpari had become of the largest brokers with all sorts of clients, from institutional to retail and professional. During this time, they increased their market research tools, trading reports, charts indicators, features, and the number of services etc. The customer service was one of the best I have experienced in this industry and the account management service was pretty professional. The company offered ‘Spread Betting’ to the UK clients, and in September 2013 it added Binary Options for forex and precious metals to its list of financial instruments. They were active sponsors with many sponsorship agreements - the biggest one being West Ham United FC. Alpari UK had planned to go public and have an IPO for the London Stock Exchange in 2015, but that wasn´t meant to be as the company bankrupted in January 2015.
On 15 January 2015, the Swiss National Bank (SNB) had reserved something that the market and the forex world wouldn´t forget easily. The SNB had a peg put in place for the CHF at 1.20 against the Euro for three and a half years, but they suddenly decided to remove the peg. With the European Central Bank (ECB) about to declare the start of its biggest money printing program, no one thought that the SNB would do such an act, so everyone was caught off guard. EUR/CHF tumbled to 0.75 from 1.20 and USD/CHF fell to 0.61 from 1.02 in a matter of minutes if not seconds. Personally, I had a very small position on EUR/CHF which I had opened several days before the event against the 1.20 peg. Right after the peg removal, I watched my Alpari account reach a few thousand dollars in debt. Many other clients had open buy positions in this pair as well, thinking that they had the SNB covering their backs. So when the SNB removed the peg, thousands of accounts were floating in red with huge losses and the brokers had to close the open EUR/CHF buy trades. When my open position was closed by Alpari my account was about $2,500 in debt. A large number of these clients couldn´t pay or didn´t want to pay up the negative balances and blamed their brokers for the loss.
Many brokers faced huge losses since they had to cover negative balances themselves... some of them even bankrupted! Alpari UK was the biggest name of the industry to file for bankruptcy yet. These brokers asked the clients to pay the debts, but traders quickly organized into groups asking national regulators to open enquiries and hire legal firms to represent them against the brokers. IG lost about $45 million; FXCM was rescued and taken over by Jefferies after its shares fell 98% with $225 million in debt; Alpari UK was forced to file for bankruptcy. It entered the liquidation process and the company that had to take over the process was KPMG. They hired a UK-based debt collection agency with offices worldwide in order to collect the clients´ debts - but as I mentioned we have already grouped and hired a legal firm to represent us against their claims.
The cause of death
When I open a position, I always place a stop loss target to it because you never know what might happen in forex. I did the same with my EUR/CHF long position; I placed the stop loss just below the 1.20 peg level at 1.1985. But my stop loss wasn´t triggered and even when the balance of my account reached the minimum and went zero the trade wasn´t closed by the system. How could that happen? Isn´t trading all automated? The answer is… it is automated and your trades should close automatically by the system once the price reaches the take profit or stop loss targets, but in such occasions when the price moves thousands of pips in a few seconds it does so in big leaps so it jumps over your targets. That happens, especially when the system is not very fast and the system Alpari UK used is outdated. When you operate in the financial markets, particularly in forex, you must have the latest and most advanced systems to expect the unexpected. Other brokers, like Dukascopy, had minimal to no losses because they systematically upgrade their systems in order to catch every little pip in the price action and trigger the stop losses and take profits. The brokers who saved on technology, like Alpari UK, paid it on debts. This shows that when you try to find a broker, you should also check their operations and pick the one with the most advanced technology.