"FXCM, the brokerage facing a shortfall of nearly a quarter-billion
dollars after highly-leveraged investors made losing bets on the Swiss
franc, pushed back against U.S. regulatory efforts that likely would
have left it less vulnerable."
Talk about Karma! Low leverage thresholds usually hurt the little guy, who gets caught short in a bad trade and struggles to cover. But when a big unexpected event occurs, like the Swiss unlocking their rates, ALL of the trades hit stops pretty much, and the volume prevented liquidation before most blew through the capital requirements, so the brokerage goes instantly broke too.
IF the investors cover their losses (any some may not be able to), then the brokerage will be OK. If not, the brokerage folds, and the winners on the other side of trades lose too. As with Lehman, the trouble starts when trades can't net out, and the contagions.
One might wonder why trading with leverage from the trading house that makes money on the trading value is even allowed.
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