Danger.. Why You Should Stop Trading FX - CHF Rate Decision | Forex Factory

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Danger.. Why You Should Stop Trading FX - CHF Rate Decision

  • #1
  • First Post: Edited 5:50am Sep 6, 2011 5:46am | Edited 5:50am
**WARNING!!! MARGINE CALL CAN LEAVE YOU OWING THE BROKER BIG TIME**

Does your broker honor margine calls during fast moving markets such as news releases or suprise bank decisions that come out of nowhwere??? If not your account is GONE.

I realized this due to the CHF rate decision on 09/06/11

Let me explain...

I have a live mini account that I only put in $10.00 at a time so as to experience emotions rather than trading a demo without the luxery of emotions.

I had a trade on the USDCHF with .01 lot size which equates to a little over 1 cent per pip and NO stop loss, shame on me for not have been using money management, BUT IT WOULD HAVE NOT HELPED. Neither would have the brokers margine call of 100%

Here's why!!!

Price moved rapidly over 700 pips GAPPING up several times. Because price was gapping up against me so fast the 100% margine call did not close out my trade. I had to manually close it at 61.5% margine leaving me owing the broker a little over $1.30.

If I would have had a $10,000 standard account and made that trade using a conservative 2 lots I would have blown the account and owed the broker 700 pips X 2 lots = $6,800. A STOP LOSS WOULD HAVE NOT HELPED!!!

IBFX has a policy that says---

Buy stop, Sell stop and (Stop loss) orders do not guarantee an order will be filled at a certain price.

[All stop orders instruct the broker to open or close an order once a specified price is met or exceeded. ]

The specified price is known as the stop price. Once the stop price is met or exceeded, the order becomes a market order. Market orders instruct the broker to fill the order at the next available price. The execution price of a buy stop, sell stop or stop loss can vary from the stop price.

[This occurs most commonly during significant market moves or gaps.]

**Often these price gaps are the result of economic news releases. Keep in mind that in a volatile market substantial losses may occur and orders may not be filled as placed.***
  • #2
  • Sep 6, 2011 6:08am Sep 6, 2011 6:08am
If this is all "news" to you, just be thankful you learnt this lesson whilst trading a teeny tiny demo account!
  • #3
  • Sep 6, 2011 6:11am Sep 6, 2011 6:11am
Everybody who trades FX signs a declaration stating that they know what they are doing and understand the risks. Nobody would sign that if they didn't really understand it would they? So what's the problem?
  • #4
  • Sep 6, 2011 7:32am Sep 6, 2011 7:32am
That is why money and risk management is so important.
  • #5
  • Sep 6, 2011 7:48am Sep 6, 2011 7:48am
Would you put on a 1 standard lot trade with an account ballance of $10,000?

That fits into a money management of 1%.

Price spikes up 700 pips and ignores your 100 pip (money management) stop loss.

Guess what happens to your account?

Gee, $3,000 left.

Would you have signed a contract with your broker if you knew a country was going to manipulate their currency in a supprise move and rip $7,000 from your account???

3 yrs of trading with over 4,000 trades and never seen a move like that one. SO, You Never Know When Your Account Is Going To Be Wasted... Suprise.
  • #6
  • Sep 6, 2011 8:03am Sep 6, 2011 8:03am
Quoting notime794
3 yrs of trading with over 4,000 trades and never seen a move like that one. SO, You Never Know When Your Account Is Going To Be Wasted... Suprise.
This is why I always trade with a Guaranteed Stop Loss!
3 additional pips per trade is worth it for the peace of mind.

Just wondering if this is the greatest % move in FX markets historically. Anyone know a greater one??
  • #7
  • Sep 6, 2011 8:05am Sep 6, 2011 8:05am
Quoting notime794
Would you have signed a contract with your broker if you knew a country was going to manipulate their currency in a supprise move and rip $7,000 from your account???
If I know what I am doing, yes.

Quoting notime794
3 yrs of trading with over 4,000 trades and never seen a move like that one. SO, You Never Know When Your Account Is Going To Be Wasted... Suprise.
The market doesn't care. If you know what you are doing it is all fine. Do you know why this happened?
  • #8
  • Sep 6, 2011 10:42am Sep 6, 2011 10:42am
Nothing in FX is guaranteed. In a rapid moving market when price gaps your stop loss and margine are not safe. The margin call happens at 100% or less margin level. In case of a price gap, it closes at the first available price after the gap as does stop losses.

Absolutely nothing to do with knowing what you're doing.
  • #9
  • Sep 6, 2011 11:10am Sep 6, 2011 11:10am
Actually that's why you should stop trading with leverage, not just stop trading . But as long as we can't afford that, we have to take that risk into consideration from the beginning.
  • #10
  • Sep 6, 2011 6:47pm Sep 6, 2011 6:47pm
Quoting notime794
Nothing in FX is guaranteed. In a rapid moving market when price gaps your stop loss and margine are not safe. The margin call happens at 100% or less margin level. In case of a price gap, it closes at the first available price after the gap as does stop losses.

Absolutely nothing to do with knowing what you're doing.
Not true, Guaranteed stop loss is exactly that, the broker charges a premium to guarantee that your trade will be closed at your specified price. I think it's a useful tool & cost of trading as a business.
  • #11
  • Sep 6, 2011 7:23pm Sep 6, 2011 7:23pm
Quoting timster
Not true, Guaranteed stop loss is exactly that, the broker charges a premium to guarantee that your trade will be closed at your specified price. I think it's a useful tool & cost of trading as a business.
Depends on the broker. You should read the contract carefully whether or not margin call is truly guarantied. I would say not in most cases - at last not with a decent amount of money.

CHF peg was 8 sigma move. Unfortunately if you were on the wrong side of the trade there was nothing you could do about it.
  • #12
  • Sep 6, 2011 7:24pm Sep 6, 2011 7:24pm
Quoting notime794
**WARNING!!! MARGINE CALL CAN LEAVE YOU OWING THE BROKER BIG TIME**

Does your broker honor margine calls during fast moving markets such as news releases or suprise bank decisions that come out of nowhwere??? If not your account is GONE.

I realized this due to the CHF rate decision on 09/06/11

Let me explain...

I have a live mini account that I only put in $10.00 at a time so as to experience emotions rather than trading a demo without the luxery of emotions.

I had a trade on the USDCHF with .01 lot size which equates to a little over...

Are you aware that if you buy a house and the market falls there is no stop loss?
So will that prevent you from buying/owning a house now?
  • #13
  • Edited 7:38pm Sep 6, 2011 7:34pm | Edited 7:38pm
Quoting Rikers
Depends on the broker. You should read the contract carefully whether or not margin call is truly guarantied. I would say not in most cases - at last not with a decent amount of money.

CHF peg was 8 sigma move. Unfortunately if you were on the wrong side of the trade there was nothing you could do about it.

You have a good point I will clarify my understanding of a GSL with my broker(have sent them an email already).
What I understand (and from my experience trading with my broker) I can not place a GSL trade without the funds already in my account, so in effect there is no margin call, as I have risked a certain amount with a GSL closed price.

Will confirm this once I know!

EDIT
From my broker's website:
A Guaranteed Stop trade uses a ‘Limited Risk’ Stop order, which protects you from slippage.

As with a regular Stop order, you place your Guaranteed Stop at a level where, if our quotation reaches it, your position is automatically closed. Unlike a regular Stop, it is guaranteed that, no matter how quickly the market moves, your position will always be closed out at your exact Stop level, and no worse.

When you place a Guaranteed Stop, you pay a small additional premium. For Share CFDs, we debit the Guaranteed Stop premium off the cash balance on your account when you open the position. For all other markets, the premium is charged on the opening level of the position

ANOTHER EDIT:
A Guaranteed Stop is a type of closing stop order that protects entirely against the risk of slippage on the closure of a trade. In the event of a Guaranteed Stop triggering, your position cannot be closed at a worse level than the stop level selected, even in volatile market conditions.
  • #14
  • Sep 6, 2011 10:50pm Sep 6, 2011 10:50pm
Is a guaranteed stop loss standard with all brokers or a select few?
  • #15
  • Sep 6, 2011 11:06pm Sep 6, 2011 11:06pm
Quoting notime794
Is a guaranteed stop loss standard with all brokers or a select few?
IG Markets is the only one I know but they do not use MT4
  • #16
  • Sep 6, 2011 11:29pm Sep 6, 2011 11:29pm
Your math is off by 1 zero sir... 100 pip SL risking 1% comes to trading 1 mini lot, not a standard lot. Thus a 700 pip stop out, or 7%, would leave you with $9,300
Change that trade to 1 standard lot with a 100 pip SL,, you are risking 10% (most traders would call that very bad MM) thus at 700 pip stop out yes, youd have lost 70% of your account leaving a $3000 balance.

Make sense to you?


Quoting notime794
Would you put on a 1 standard lot trade with an account ballance of $10,000?

That fits into a money management of 1%.

Price spikes up 700 pips and ignores your 100 pip (money management) stop loss.

Guess what happens to your account?

Gee, $3,000 left.

Would you have signed a contract with your broker if you knew a country was going to manipulate their currency in a supprise move and rip $7,000 from your account???

3 yrs of trading with over 4,000 trades and never seen a move like that one. SO, You Never Know When Your Account Is Going...
  • #17
  • Sep 7, 2011 12:18am Sep 7, 2011 12:18am
Quoting notime794
Nothing in FX is guaranteed. In a rapid moving market when price gaps your stop loss and margine are not safe. The margin call happens at 100% or less margin level. In case of a price gap, it closes at the first available price after the gap as does stop losses.

Absolutely nothing to do with knowing what you're doing.
i suggest stop trading Fx and go to spend your moneys to the beach.........
  • #18
  • Sep 7, 2011 6:22am Sep 7, 2011 6:22am
Quoting notime794
If I would have had a $10,000 standard account and made that trade using a conservative 2 lots I would have blown the account and owed the broker 700 pips X 2 lots = $6,800. A STOP LOSS WOULD HAVE NOT HELPED!!!
This is not the case with Oanda.
While they do not guarantee exact stop levels either, they do guarantee that you cannot lose more than what your account balance was, so no negative balance.

see here:
http://fxtrade.oanda.com/legal/risk-warning

Quote
The possibility exists that you could sustain a total loss of initial margin funds. OANDA's trading system is designed to automatically liquidate all open positions if your margin deposit is in jeopardy so that you cannot lose more than the funds you have on deposit in your account.
Following Oanda Forum I have seen myself cases where in such situations at least the zero equity balance of the trader was restored by Oanda.

So it should be part of a good risk management to always have at least as much reserve money in another account as what your trading account balance has (risk capital), so that you are always able to begin anew.
There should never be more money in an active trading account than what your risk capital is, ie. what you can afford to lose any time without getting into a situation where you cannot continue.
  • #19
  • Sep 7, 2011 5:56pm Sep 7, 2011 5:56pm
Quoting pescador
This is not the case with Oanda.
While they do not guarantee exact stop levels either, they do guarantee that you cannot lose more than what your account balance was, so no negative balance.

see here:
http://fxtrade.oanda.com/legal/risk-warning

Following Oanda Forum I have seen myself cases where in such situations at least the zero equity balance of the trader was restored by Oanda.

So it should be part of a good risk management to always have at least as much reserve money in another account as what your trading account balance...
Check I G markets they have a genuine GSL
  • #20
  • Last Post: Sep 8, 2011 6:20am Sep 8, 2011 6:20am
I already posted this under GO Markets broker thread, but here it is for you to see, I was stopped out exactly on the pip during that move on both GBP=CHF & EUR=CHF trades where I had short signals & trades.

Stop was 2% for both, I am still trading and equity is back above where it was that day...
Attached Image (click to enlarge)
Click to Enlarge Name: stop loss good 1.jpg Size: 233 KB
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