Traders using Alpari’s spreadbetting platform have reacted with anger to the firm’s problems and its failure to communicate with clients who were locked out of their accounts.
When the firm folded it initially told customers it had gone into insolvency, only to change the announcement on its website to say it could be sold off.
But customers have been given little information on how to recover their funds. Alpari disconnected its phone lines over the weekend, and emails sent to the trading platform bounced back to clients.
Spreadbetters make it clear clients can lose more than the capital they put in – part of the purpose of the sector is to allow customers to leverage their bets.
But customers were more surprised to find that even those who were not betting on the Swiss franc have been burned, as they cannot access their funds, and have had trading positions closed.
“I went to check the account on my mobile and found my trade had been closed. I had not closed it, so I went online and found the message saying the firm had gone into insolvency,” part-time trader and Alpari customer Glenn Camilleri told City A.M.
He has more than €10,000 in his account, but cannot access the funds and said he has had no word from Alpari on when or how he will get his money back. “I was not trading Swiss francs – I was trading the euro with the dollar. I did not lose money, I was in profit. It is not fair – I am in a situation where either way I lose.”
The Financial Conduct Authority regulates spreadbetters lightly. The watchdog makes sure client money is kept in segregated accounts, so the funds are not lost if the firm goes bust.
“It is something I started as a hobby, and now I need to work out how to get my money back. I will not continue trading,” Camilleri said.
Michael Hewson, chief markets analyst for CMC Markets, said traders need to make sure they manage their risks.
“You can mitigate the risk, in the same way you can when you invest in the stock market," he said. "This was a black swan event, I’ve never seen anything like it and I’ve been working in the City for 25 years.”
■ Alpari is a Russian-owned firm which was set up in 1998. Its UK arm has offered foreign exchange facilities since 2004.
■ Spreadbetting has been around since the 1970s, when it was primarily used to allow financial traders to gain exposure to gold.
■ Alpari’s expansion matches that of the rest of the sector, which boomed with the advent of the internet.
■ Group co-founder Andrey Vedikhin was initially also the UK chief executive, but in November 2013 the role was taken by David Hodge. He has been at Alpari since 2011, and previously worked at IG, another spreadbetting firm.
■ The business has well over 100,000 clients, with over 200,000 client accounts.
■ Although Alpari is the most high-profile casualty of the Swiss franc’s swings last week, losing $45m, it is far from the only firm to have been burned.
■ Excel Markets also ceased trading, telling clients to close their positions quickly and to request the return of balances in their accounts.
■ FXCM lost the largest amount, taking a $300m cash injection from its parent group Leucadia, to cover its $225m losses.
■ IG took a £30m hit from the unexpected turmoil.
■ The damage and shock was compounded because spreadbetters had seen the euro-Swiss franc market as a certain stable bet. The Swiss National Bank had pledged to keep the franc at €1.20, and so traders used that as a fixed point, trading on the interest differential between the currencies.
■ So when the SNB removed the peg, the franc soared and spreadbetters were caught out.
■ The platforms allow clients to trade on margin, putting up capital worth only a small percentage of the overall exposures – essentially offering customers credit to bet, resulting in outsized losses versus the capital invested.
Q What is margin? And why does it mean clients were so exposed to losses?
A Spreadbetting is not like investment in a currency. If you buy currency in the hope that its value rises, the most you can lose is that investment. Spreadbetting lets you trade on margin – essentially extending credit. If you choose margin of one per cent, it means you are leveraged up 100-to-one. If your bet goes well, you gain hugely. But if it turns sour, you can lose far more than you paid up front.
Q What are the rules on this?
A Although many areas of finance are heavily regulated, spreadbetting is not. Firms choose what margin to offer, judged on clients’ creditworthiness. Alpari let clients choose up to 500-to-one.
Q Is this the same everywhere?
A No. In the US the limit is 50-to-one, and in Japan it is 25-to-one. That has driven lots of business to London. But it also means firms have to be careful about who they extend credit to, and how much capital they hold, to cope with any losses if clients go bust.