What the SNB is
The SNB is the Swiss National Bank, Switzerland’s central bank and the institution that issues the Swiss franc (CHF). Like other central banks it has a public mandate to preserve price stability and support the financial system, but its structure and behaviour make it particularly relevant for forex traders. The SNB manages Switzerland’s foreign currency reserves, sets short‑term policy rates and intervenes in markets when it judges that currency moves threaten its monetary goals or the wider economy. Because the Swiss franc is widely seen as a safe‑haven currency, SNB actions can produce outsized moves in forex markets and rapid changes in liquidity.
How the SNB affects forex markets
The SNB influences exchange rates both directly and indirectly. Directly, it can buy or sell foreign currencies and thereby change the supply of francs in the market. When the SNB buys dollars or euros it increases CHF liquidity and tends to weaken the franc; when it sells foreign currency and absorbs francs it makes the franc stronger. Indirectly, the SNB’s policy rate decisions and communication shape interest‑rate differentials that drive carry trades and longer‑term flows. Because Swiss banks and investors are major participants in global markets, the SNB’s balance sheet and liquidity operations also affect interbank funding and short‑term rates that traders use to price CHF pairs.
The franc’s safe‑haven status amplifies this effect. In times of global stress, investors often rush into CHF, pushing the currency higher. The SNB may respond to a rapid appreciation if it judges that a too‑strong franc threatens domestic price stability or growth. That interaction—safe‑haven demand pushing CHF up, SNB intervention attempting to hold it down—creates important trading dynamics around CHF crosses.
The main tools the SNB uses
The SNB has a toolbox typical of central banks, but with some features that matter to forex traders. First, it sets a policy rate and the interest rate applied to sight deposits banks hold with the SNB; these rates influence short‑term CHF money market levels and benchmarks such as SARON (the Swiss overnight rate). Second, the SNB conducts open‑market operations and can issue SNB bills to drain liquidity. Third, it conducts foreign exchange operations: buying or selling foreign assets to influence the CHF exchange rate. Fourth, the SNB provides standing liquidity facilities and, in exceptional circumstances, emergency liquidity assistance to banks. All these instruments change liquidity conditions in the franc money market and can create sudden moves or changes in volatility in CHF currency pairs.
A practical consequence for traders is that an SNB intervention in foreign exchange markets typically shows up as a large, often one‑sided order flow that can move CHF pairs quickly and widen spreads. Conversely, changes in the policy rate or the SNB’s guidance about future policy can shift positioning across EUR/CHF, USD/CHF and other crosses.
Historical examples that shaped market behaviour
Traders learn from big events. Two instances involving the SNB are often cited.
One was the SNB’s decision in 2011 to set a floor for EUR/CHF to prevent the franc from appreciating too far. For several years the SNB pledged to defend that floor by buying foreign currency. The other was the abrupt removal of that floor in January 2015. When the SNB stopped defending the exchange rate, the franc surged and liquidity evaporated; many brokers and market makers widened or suspended pricing, and some retail accounts suffered large losses. That episode is still a reference point for how fast CHF liquidity can disappear and how extreme slippage can be.
More recently, the SNB has used negative interest‑rate policy and large FX reserve accumulation to shape franc valuation. The bank’s willingness to intervene and to set policy rates below zero has kept traders aware that the SNB will act to counter both excessive appreciation and disinflationary pressure.
These episodes show that SNB actions can be both gradual (policy drift and reserve accumulation) and sudden (intervention announcements or unexpected policy changes), so traders treat SNB communications and meeting dates as high‑risk events.
What traders should watch and how they typically react
Traders who follow CHF pairs keep an eye on several types of SNB signals. Formal monetary policy decisions, the SNB’s monetary policy assessment and press conferences are primary events because they change rate expectations. The composition and changes in the SNB’s foreign currency investments and sight deposit balances can indicate past intervention and potential future behaviour. Unscheduled comments or confirmations of FX interventions are important because the SNB sometimes acts without lengthy advance notice.
In practice, many traders reduce size and widen stops ahead of SNB releases or major market stress, because the combination of high volume and lower liquidity can produce sharp moves and slippage. Others use options to hedge event risk: buying protective calls or puts on CHF pairs can limit downside in the case of a surprise franc move, albeit at a premium. For longer‑term positions, monitoring Swiss macro data, global risk sentiment and divergences between Swiss rates and other central bank rates helps form a directional view on CHF.
A concrete example: if global risk aversion spikes (for example during a debt or banking scare), CHF often strengthens. A trader holding a short EUR/CHF position might see rapid gains, but should also be aware that the SNB could intervene if the move threatens Swiss inflation or exporters, which would reverse or blunt the profit. That interplay is why many traders favour smaller position sizes around CHF‑sensitive events.
Market mechanics and practical consequences
SNB interventions and rate changes affect spreads, execution, and margin. During intense SNB‑related moves brokers may widen spreads or raise margin requirements on CHF pairs. Liquidity can fragment: retail platforms might show stale quotes or refuse to execute near the new market price. Slippage — the difference between intended and executed price — can be especially large during SNB episodes. Traders using leverage should be aware that margin calls can occur quickly when CHF pairs gap beyond expected ranges.
Another practical point is that the SNB has a large balance sheet and significant foreign reserves. Large purchases of foreign assets by the SNB increase franc liquidity and can feed through to broader risk assets. Many institutional desks track changes in central bank reserves and sight deposits as an indicator of intervention tendency.
Risks and caveats
Trading around central‑bank activity, including the SNB, carries elevated risk. The SNB can and does act in ways that are hard to predict: interventions may be undisclosed initially, policy shifts can be abrupt, and safe‑haven flows can overwhelm liquidity. Historical episodes show that sudden changes can produce extreme gaps and slippage, and retail margin accounts are particularly vulnerable. This article provides general information, not personalised trading advice. Always recognise that trading carries risk; use appropriate risk management, position sizing and, where suitable, hedging strategies. Be prepared for wider spreads and sudden changes to margin requirements around SNB communications or periods of global stress.
Key Takeaways
- The SNB is Switzerland’s central bank; its policy decisions and FX interventions strongly influence the Swiss franc and CHF currency pairs.
- The bank uses interest rates, FX purchases/sales and liquidity tools; each can change CHF liquidity and short‑term volatility.
- Historical events (for example the 2011–2015 floor and its removal) show how fast CHF moves and how market liquidity can evaporate.
- Trading around SNB events carries higher execution and gap risk; manage size, use stops and consider options for protection.
References
- https://www.fxstreet.com/macroeconomics/central-banks/snb
- https://www.snb.ch/en/the-snb/mandates-goals/monetary-policy/foreign-exchange-operations
- https://www.investopedia.com/terms/s/swiss-national-bank.asp
- https://www.snb.ch/en/the-snb/mandates-goals
- https://www.snb.ch/en/the-snb/mandates-goals/statistics/statistics-pub/current_interest_exchange_rates
- https://forex.tradingcharts.com/glossary/Forex%2BTerminology/SNB.html
- https://gianlucabenigno.substack.com/p/the-snb-operational-framework-a-primer
- https://en.wikipedia.org/wiki/Swiss_National_Bank
- https://www.ig.com/en/glossary-trading-terms/snb-definition
- https://www.snb.ch/en/snb-explained/portrait