Forex Volatility Confirms Need For Broker Risk Management
Decisions made by the Swiss National Bank yesterday caused excessive volatility in the Forex Market. This recent debacle has proven once again the importance for risk management and trade reconciliation for brokers. Time and again we find that brokers do not put enough emphasis on managing their risk but instead choose to “fly by the seat of their pants” until it is too late. We have heard an extensive amount of complaints from sources that their liquidity providers have re-quoted, froze liquidity, and even altered confirmed ticket prices hours later. These brokers have no recourse since there is no way to prove it.
In addition to reconciliation issues, many brokers had A-Book exposure and lost significant capital before they were aware of their exposure. For others, their B-Books were out of control as they were not aware how exposed they were to the market.
How does CurrentRisk help in this situation?
With easy access to order confirmation, CurrentRisk makes it possible to run reports comparing the original price versus the price at the liquidity providers. This helps brokers to determine if the price was altered at a later time.
A-Book Position Monitoring
CurrentRisk comes with an A-Book monitor that notifies the broker of any A-Book positions that were not covered between the frontend and the backend. If there was a technology failure or “time out” at the LP/PB level the broker would be alerted immediately and their risk team would be able to react quickly to cover the unwanted exposure.
B-Book Position Monitoring
CurrentRisk also provides a B-Book monitor that sets off alerts if the PNL on any positions surpasses a level set by the risk team. CurrentRisk issues these alerts in real-time with visual, audio and email notifications so the broker can react rapidly to any movements.
Will brokers finally realize the importance of trade reconciliation and position monitoring? The Swiss National Bank event should be a reality check for brokers who need to realize that limited risk management and manually doing trade reconciliation is not smart business management.
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