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Black swan events / CHF Peg

  • #1
  • First Post: Apr 25, 2018 7:08pm Apr 25, 2018 7:08pm
Hello guys, my trading is getting better and better, and ive started to think about risk so eleminate the possibility to get burned.

I only trade forex and dax, and if iam correct, the biggest move in history was the eur/chf peg event?

I wonder if anyone here was around that time? IF there are any site or youtube video that shows what happend, and how big the slippage was from peoples stoplosses. The more I read on internet, the more different answers I get...

And my last question, what could lead to a movement big or close as big today, if you hit me up with your worst possible scenario, but ONLY on maiors FX pairs. Trying to understand the worst scenarios, and maybe its impossible to prepere for it, but just want to know what game Iam in
  • #2
  • Apr 26, 2018 5:03am Apr 26, 2018 5:03am
Prob the most important question that never gets asked, so good work for cottoning on so quick.

THEN
Between Reuters composite (interbank traded prices) and retail brokers the low was 12% higher (.8592 vs 0.9652 using FXCM MT4 demo)

On a broker level, here's what happened. They disposed of their own losing positions quickly, No trades were opened or closed until the positive positions made up for the loss (net flat). They then saw this enormous potential gain for the positive positions and so trimmed the downside too to pay for the topside by locking platforms to stop everyone out from taking profits.

So if you were on the wrong side, you got out at the worse possible price (and owed that money to the broker). If you were positive you couldn't get out your winning trade until they had made up for any losses. You won't find a definitive answer of slippage- depends on the broker and whether you were long or short on the day.

Gets worse still - FXCM are alleged to have millions disappear from their books that day, and are currently in court working out the difference between gross negligence and fraud.

I was trading that day and remember it well. Months prior because of the SNB manipulations, I'd decided not to trade the pair because of the danger. While there was clear downside on eurchf the SNB actions meant you needed a buffer of several hundred pips to withstand their barriers.

Most brokers followed suit and reduced leverage on the swissy weeks before the event too.

NOW
To today. These potential events still keep me awake at night, and have been considering buying option straddles at the start of the week just as a security, even though these too have their downside. here's my read on the market risks and keen to hear others.

Three key risks to watch out for : govt intervention, event risk (natural disasters like Fukushima) and event risk (political/ economic).
While interest rates are key, the real big multi-sigma moves come from interventions or natural disasters (eg Japan's Fukushima). Combine any of these with thin liquidity (Asian sessions) and can magnify any problem.
My rules:
- No positions over the weekend, reduce leverage overnight.
- Central bank statements "We will not interfere" - mean nothing. They lie, deliberately.
- Current at risk currencies: GBP has a Brexit risk - watch for gathering momentum for second referendum. Weaker CHF and JPY, which are usually the ones to watch are both in the interests of exports, and so will be welcome.
  • #3
  • Apr 26, 2018 9:58am Apr 26, 2018 9:58am
Quoting triphop
Prob the most important question that never gets asked, so good work for cottoning on so quick. THEN Between Reuters composite (interbank traded prices) and retail brokers the low was 12% higher (.8592 vs 0.9652 using FXCM MT4 demo) On a broker level, here's what happened. They disposed of their own losing positions quickly, No trades were opened or closed until the positive positions made up for the loss (net flat). They then saw this enormous potential gain for the positive positions and so trimmed the downside too to pay for the topside by locking...


WOW, what an answer!!!

Thank you so much for this information sir, rly appriciate it!
  • #4
  • Apr 26, 2018 7:51pm Apr 26, 2018 7:51pm
Use no negative balance broker and dont put all your money into the forex account. For example 1000 to the forex account and 1000 to the bank account. Now you still have 2000 but can only lose 1000 when something like that happens. Theres no point of having everything in forex account, unless you want to max out your leverage of course, and thats probably not a good idea.
  • #5
  • Edited 4:11pm Apr 27, 2018 2:09pm | Edited 4:11pm
I agree with all posters.

If you want to be on the safe side here is what i think:

Don't trade bigger positions sizes than you can afford to lose. If you trade 0.01 lot for EUR/USD, it corresponds $1000 if I am not mistaken. If you have a small account and using leverage to trade that position size, make sure to have that $1000 in your bank account (not the fx broker account). In case market goes wrong, you can pay the broker back as the account will most probably go into negative balance on such event. (if the position size is bigger than your account size, which is most often the case, as most traders use leverage).
If you enter buy position and market goes to the wrong direction the loss is limited.
if you enter sell position and market goes to the wrong direction the loss has no limits (in theory).

And to not lose all your profits, do not increase lot size. This also means that you won't make a lot of money in short term but at least this way you can keep some profits.
Ofcourse you can increase lot size a little by little in the beginning until you reach a point that will be your regular lot size. Hope you understand what I mean.
the bigger the lot size, the more your money is at risk.

If I am wrong correct me.
  • #6
  • Apr 27, 2018 3:32pm Apr 27, 2018 3:32pm
In my opinion, black swan doesn't exist. They are completely predictable. This is the black swan you are talking about..

I've been dedicating some time studying those behaviors. I recently created a demo trading explorer just to try a strategy based on those HTFs.
I've came to the realization (which most already know) that forex is just a big manipulation. For the big players to sell they need to manipulate the market in order to create lots of orders in their favor. STOP RAIDS is a sign to me that something is cooking.

Just my opinion, of course. I'm still learning this new way of seeing the market
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Luck Favors the Bold
  • #7
  • Apr 27, 2018 3:40pm Apr 27, 2018 3:40pm
GBPSUD - June 20 2016 1600 pips in 1 hour. Another black swan. Look at the pattern. Strong down move, strong rejection, compression, stop raid, price continues to move down
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  • #8
  • Apr 27, 2018 4:03pm Apr 27, 2018 4:03pm
I know its easier to make those analysis in hindsight so here is a trade I'm currently in (you can check my trading explorer) based on the same concept. I'm still doing this on a demo account, because like I said, I've been studying those manipulations.
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Luck Favors the Bold
  • #9
  • Apr 29, 2018 4:39am Apr 29, 2018 4:39am
Black Swans can't be predicted but they can be anticipated.

And by the way there are also positive Black Swans as well as negative, which is all that Taleb was writing about. For example, for long-term trend-following traders, the EUR/CHF event in 2015 was a positive Black Swan. No long-term trend-follower should have been long on this pair in January 2015, price was in a long and consistent downtrend, and if in the market they should have been short. It will be the regret of my life that although my rules told me I should have been short on this pair I was not. Of course, the talk from the Swiss central bank president was a good argument for staying in cash so I don't suppose many traders made a fortune that day. But we should have done.

Many famous crashes in the stock market have occurred in line with the prevailing trend. Many did not just suddenly appear out of a peaceful blue sky.
  • #10
  • Apr 29, 2018 6:49am Apr 29, 2018 6:49am
Quoting floriez
Use no negative balance broker and dont put all your money into the forex account. For example 1000 to the forex account and 1000 to the bank account. Now you still have 2000 but can only lose 1000 when something like that happens. Theres no point of having everything in forex account, unless you want to max out your leverage of course, and thats probably not a good idea.
What no one seems to point out isthst evrryone who m had a chf position lost during that event. It isn't even the drop which the price had but the spread right before. Thespread is what makes all of this unfair andat the end of the day is what can take a retail trader and a broker out in a second. Yes, you could lower your risk but if the brokee goes under the n your position systematically goes under also. Ask all the people from FXCM whom have yet to get their funds back and they are listed in the stock exchange.
  • #11
  • Apr 29, 2018 10:02am Apr 29, 2018 10:02am
Quoting Callitradar
In my opinion, black swan doesn't exist. They are completely predictable. This is the black swan you are talking about.. I've been dedicating some time studying those behaviors. I recently created a demo trading explorer just to try a strategy based on those HTFs. I've came to the realization (which most already know) that forex is just a big manipulation. For the big players to sell they need to manipulate the market in order to create lots of orders in their favor. STOP RAIDS is a sign to me that something is cooking. Just my opinion, of course....
Sorry you have no idea what you are talking about.
The CHF was because the SNB pulled their peg to the Euro a few days after saying they would keep it in place therefore everybody wanted out at the same time...unforseen circumstances ie black swan. You are showing a monthly chart but the move happened in a few minutes.
The GBP was a result of brexit when everyone thought UK would stay in therefore not black swan just most people being on the wrong side of the trade.
Non of this is manipulation by dark forces or any other crap people think just traders being on the wrong side after an event.
Actually I have seen the CHF incident referred to as a black swan event squared which is quite apt when you think it made the USD look like the Zimbabwe $ for a few minutes.
The greatest enemy of a good plan is the dream of a perfect plan.
  • #12
  • Apr 29, 2018 2:23pm Apr 29, 2018 2:23pm
fact: black swan and dragon king exist, or call them abnormal events (like people markets have a chracter, behaviour, some are normal people, some not but from time to time both are doing some irattional decisions ec.),
fact: when they happen they are positive and negative in the same time (trader A was long eur/chf so for him is negative/bad swan but trader B was short eur/chf for him was postive swan)
fact: nobody can design a system that can skip opening position before a black swan

before that event i was long usd/chf and short eur/chf for some months just because my system/approach to the market said so (i'm just a dump,lazzy trend follower), with 3 or 4 days before of the event i break the basic rule in trend following (the trend is your friend, until the end when it bends) and closed the usd/chf long position just because of a fealing but i stayed short in eur/chf

soros is a trend follower (betting on historyc events, just read his trading approach) but he was long eur/chf i think because it was the oposite trade of 1992 gbp/usd event (it's almost unlogical that a national bank, snb can print it's currency for devaluating it and nothing really happened after they put the peg in the market)
this is not the answer that you are looking for, but ...
Price itself it's an indicator
  • #13
  • Apr 30, 2018 12:59pm Apr 30, 2018 12:59pm
Quoting FlatlineTrad
{quote} Ask all the people from FXCM whom have yet to get their funds back and they are listed in the stock exchange.
Can you please clarify what you mean by this? FXCM clients can withdraw funds at any time by submitting a withdrawal request through MyFXCM, our client account management portal.

Jason
  • #14
  • Apr 30, 2018 1:35pm Apr 30, 2018 1:35pm
Quoting steve10%
{quote} Sorry you have no idea what you are talking about. The CHF was because the SNB pulled their peg to the Euro a few days after saying they would keep it in place therefore everybody wanted out at the same time...unforseen circumstances ie black swan. You are showing a monthly chart but the move happened in a few minutes. The GBP was a result of brexit when everyone thought UK would stay in therefore not black swan just most people being on the wrong side of the trade. Non of this is manipulation by dark forces or any other crap people think...
So what you are saying is that they made one decision and then changed in the last minute trapping a lot of traders? So do you think they were just bored and decided to flip flop out of the blue, in a fraction of a second? If that is the case, I really have no idea how Forex works. I was under the impression that Forex was a zero sum game. So in order for you to sell, someone has to buy. If that is the case, their decision is irrelevant. In order to push the market down as they did, they must have had people buying. Not one or two. A LOT of people/capital must have been built for them to pull something like that. Plus, you clearly didn't understand what I tried to illustrate on the charts. Thats ok, Im not here to teach or convince you of anything. I'm convinced that SNB knew from the beginning that they were going to pull the peg. They built the story how it was supposed to be. There was no last minute decision. I have a MBA in investment. I worked as a financial analyst for a couple of years, so analyzing risk at a macroeconomic level was part of what I did in a daily basis. One must be a fool to take information provided without analyzing the context. Take inflation numbers for example. They are irrelevant, what you need to look at is the actual basket of goods. Same thing applies to unemployment rates. I'm no expert in Forex. This is way different of how I trade in Stocks and Options. As I mentioned before, I've been studying technical analysis (new to me) for a while now and just as I said before, you can't predict where price will go, but you can predict the power of it. If you use this with macroeconomics understanding you know when not to be caught in those moves.
Luck Favors the Bold
  • #15
  • Apr 30, 2018 4:06pm Apr 30, 2018 4:06pm
Quoting Callitradar
{quote} So what you are saying is that they made one decision and then changed in the last minute trapping a lot of traders? So do you think they were just bored and decided to flip flop out of the blue, in a fraction of a second? If that is the case, I really have no idea how Forex works. I was under the impression that Forex was a zero sum game. So in order for you to sell, someone has to buy. If that is the case, their decision is irrelevant. In order to push the market down as they did, they must have had people buying. Not one or two. A LOT...

Take a look at this account - http://fortune.com/2015/01/16/swiss-...bank-currency/

Things are not always as simple as the economics text books say they should be.
  • #16
  • Apr 30, 2018 4:12pm Apr 30, 2018 4:12pm
Quoting tomorton
{quote} Take a look at this account - http://fortune.com/2015/01/16/swiss-...bank-currency/ Things are not always as simple as the economics text books say they should be.
I agree, which is precisely my point.
Luck Favors the Bold
  • #17
  • May 1, 2018 4:34am May 1, 2018 4:34am
Quoting Callitradar
{quote} So what you are saying is that they made one decision and then changed in the last minute trapping a lot of traders? So do you think they were just bored and decided to flip flop out of the blue, in a fraction of a second? If that is the case, I really have no idea how Forex works. I was under the impression that Forex was a zero sum game. So in order for you to sell, someone has to buy. If that is the case, their decision is irrelevant. In order to push the market down as they did, they must have had people buying. Not one or two. A LOT...
Apples vs pears mate. A black swan is generally accepted to mean exactly at Steve says- a big unforeseen event that catches people by surprise, and the aim of this thread was looking at that from a market risk perspective. Of course the SNB knew a few days prior exactly what they were doing, but the withdrawal of the peg was a surprise to most participants. Liquidity actually dried up (EBS stats, not FF finger in the air reckoning), algos went ballistic, accounts went bust and few a few crucial seconds (hours for the retail crowd) there was virtually no liquidity whatsoever which created a huge account-destroying moment.

Calli: "In my opinion, black swan doesn't exist. They are completely predictable. "

Market shocks don't give a monkeys about your analysis or mine. All you can do is look out at past events, keep an eye on economic and political climate and position accordingly.
  • #18
  • May 1, 2018 7:25am May 1, 2018 7:25am
The Swiss massacre was just that, not a Black Swan.

Study your financial history because when there's a currency peg in action it's normally just a matter of time before its busted as with the Swiss. Everyone who lost, lost because they either didn't know their financial history or did but were stupid and choose to ignore it.

And as another poster said - nobody in their right minds should have been long the Swiss before it happened, just look at the charts, massive downwards flow and knocking about the bottom range. if anything, busting the peg on the downside was natural and to be expected.

Black Swans are just that, totally unpredictable. Trump getting assassinated, some nutter letting off a dirty bomb in London/Paris/NW, a massive Tokyo earthquake and so on. If people want insurance against any of them, or similar, it's going to cost you A LOT of money with a policy perhaps paying off in the year 2032. It would probably be cheaper not to be involved in the markets in all honesty. Anyway, who says you'll be effected in a negative way? If the market tanks you would have to be long to lose big. But the odds favour being either short or flat.

All in all, if you're worried about a Black Swan hitting you this is probably not the business for you because trading is a game of accepting risks, you cannot get paid without accepting the risk.

PS. The last legitimate Black Swan was the Japanese Tsunami and I cannot really think of one before that because they hardly ever happen. (ADDED, yes I can, 9-11).
Road To Wisdom? To err and err and err again, but less and less and less...
  • #19
  • May 1, 2018 7:31am May 1, 2018 7:31am
Quoting Rgrg
HAnd my last question, what could lead to a movement big or close as big today, if you hit me up with your worst possible scenario, but ONLY on maiors FX pairs. Trying to understand the worst scenarios, and maybe its impossible to prepere for it, but just want to know what game Iam in
It doesn't really matter what could lead to a big move, how much the market can move is far more important.

Assuming you intraday trade, if you stress test for a move of 500 ticks (before being able to get out) that should be fine for 99% of the time.
Road To Wisdom? To err and err and err again, but less and less and less...
  • #20
  • May 1, 2018 11:15am May 1, 2018 11:15am
Quoting Calculus
The Swiss massacre was just that, not a Black Swan. Study your financial history because when there's a currency peg in action it's normally just a matter of time before its busted as with the Swiss. Everyone who lost, lost because they either didn't know their financial history or did but were stupid and choose to ignore it. And as another poster said - nobody in their right minds should have been long the Swiss before it happened, just look at the charts, massive downwards flow and knocking about the bottom range. if anything, busting the peg...

Yes, 9-11 was a genuine Black Swan. But again, no trader should have been long US equities on 9-10, let dumb money pick up the bill for these things.

There have been some market flash crashes in recent years, but I'm not sure how significant they really were.
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