the SNB floor removal, a lesson in what liquidity really is

[Shadow Trader]

On 15 January 2015 the Swiss National Bank dropped its minimum rate for EUR/CHF with almost no warning. The floor had been in place since 2011 and plenty of people treated it as permanent.

Within minutes the franc surged by an enormous amount. EUR/CHF fell by well over a third at the extreme before bouncing back part of the way. Quotes on many platforms simply stopped for a while. Liquidity providers pulled prices because nobody could say what the pair was worth.

Stops on the pair didn't fill near their levels. They filled wherever the next available bid happened to be, which was sometimes far below. Several retail brokers reported heavy losses, and some clients ended up with negative balances. A few firms failed or needed rescue.

The lesson most people took is that a stop order is a request, not a guarantee. Liquidity looks deep until the moment everyone wants the same exit, and then it can be gone entirely. A tight spread on a calm Tuesday says nothing about what happens on a shock.

The second lesson is quieter. A peg or a floor is a promise that holds only as long as the central bank wants it to. Markets that look pinned can hide a lot of one-sided positioning.

The franc crosses were not the only pairs hit, either. Anything quoted against CHF got ugly for a while, and brokers widened margin requirements on those pairs for weeks afterwards.

Anyone who traded CHF pairs back then or has studied the tick data from that morning: how long did quotes stay missing on your platform, and did the fills match what the chart showed?