Is it possible to avoid getting wiped out by a move like SNB? | Forex Factory

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Is it possible to avoid getting wiped out by a move like SNB?

  • #1
  • First Post: Edited 6:28am Jan 24, 2015 5:53am | Edited 6:28am
Hi all,

I've been demo trading quite successfully to the point where I'm considering going real.
However the surprise move by the SNB last week and the ensuing horror stories have got me thinking.

Was there a way to avoid being wiped out if you were long eurchf with a stop loss?

I guess my question is: are there any brokers that would have guaranteed the execution of a stop loss even in this case, even with a huge gap?
Because if not, then trading FX is just crazy.

Thanks
  • #2
  • Jan 24, 2015 6:26am Jan 24, 2015 6:26am
Quoting alt11
Hi all, I've been demo trading quite successfully to the point where I'm considering going real. However the surprise move by the {image} SNB last week and the ensuing horror stories have got me thinking. Was there a way to avoid being wiped out if you were long eurchf with a {image} stop loss ? I guess my question is: are there any brokers that would have guaranteed the execution...
If you don't understand why the stops weren't triggered you do not yet understand enough about the market to risk real capital. You avoid situations like the eurchf by staying away from pegged currencies or currencies that are undergoing regular Central Bank direct intervention. You also avoid situations like this by realising that no one is going to give you a free lunch and you avoid situations that you do not understand. You also have a very good think about quantifying risk exposure. Understanding the dangers of high leverage would also be invaluable to you.
"Risk comes from not knowing what you're doing." - Warren Buffett
  • #3
  • Jan 24, 2015 6:46am Jan 24, 2015 6:46am
alt11, you've asked the same question that's on my mind. The point is that, even with a stop loss, your trading account can get wiped out. That's one lesson learned. The other lesson is that, if your account goes into negative equity, your broker may come after you for the negative balance. I've traded a small live account with FCXM and had assumed that the answer to your question was to keep only the minimum in the trading account to sustain margin, and if the worst happened then all you would lose was the money in the account (given that FXCM had been so up-front with their claims about not pursuing negative balances). Given what's happened with FXCM this week however, I'm now wondering how on earth you can ever know your risk...apart from trading with a broker with CLEARLY guaranteed stop losses?
  • #4
  • Jan 24, 2015 6:54am Jan 24, 2015 6:54am
I guess my question is: are there any brokers that would have guaranteed the execution of a stop loss even in this case, even with a huge gap?

Thanks
  • #5
  • Jan 24, 2015 7:39am Jan 24, 2015 7:39am
Really simple to avoid losing more, if you have a honest, liable broker.

Don't have a stoploss but a order the otherway. With those big moves those orders almost won't slip and you can't lose anything more(your goal).
  • #6
  • Jan 24, 2015 7:52am Jan 24, 2015 7:52am
Quoting alt11
I guess my question is: are there any brokers that would have guaranteed the execution of a stop loss even in this case, even with a huge gap? Thanks
IG.

They have a guaranteed stop loss function.
  • #7
  • Jan 24, 2015 8:01am Jan 24, 2015 8:01am
Quoting Jysticim
Really simple to avoid losing more, if you have a honest, liable broker. Don't have a stoploss but a order the otherway. With those big moves those orders almost won't slip and you can't lose anything more(your goal).
But in the case of a huge gap like this the opposite order wouldn't have been triggered either, or only when the price reappeared after the gap, so the loss would still have been massively greater than the gain of the short. Anyway your account would be wiped out even before the opposite order could be executed.

Anyway isn't the "absence of liquidity" argument totally bogus? Since the brokers don't actually pass any order when you place one, they just "manage the risk" betting you'll blow your account sooner or later?

What I do notice though is that the charts of some brokers had a huge gap while some others didn't.
Are there brokers who actually guarantee the execution of stop loss orders at the set price even in cases like these, or is "at the next best bid" the best any broker will offer?
  • #8
  • Jan 24, 2015 8:04am Jan 24, 2015 8:04am
Quoting Tingus
{quote} IG. They have a guaranteed stop loss function.
Thanks
Yes, their TOS seem pretty straightforward about it
  • #9
  • Jan 24, 2015 8:15am Jan 24, 2015 8:15am
Funny thing about IG was that you couldn't open any EUR/CHF positions with guaranted SLs before it collapsed.
  • #10
  • Jan 24, 2015 8:20am Jan 24, 2015 8:20am
great, they now their risk.
Fact is there were quite a few articles out there warning of that risk in the days before it happened.
The Chinese central bank burned quite a few traders also last year like that to get rid of unwanted trading.
But the truth is anything can happen nowadays (terrorism+nuclear+...) and you want to know that your stop losses are going to be triggered whatever happens.
  • #11
  • Jan 24, 2015 8:24am Jan 24, 2015 8:24am
Quoting alt11
Hi all, I've been demo trading quite successfully to the point where I'm considering going real. However the surprise move by the SNB last week and the ensuing horror stories have got me thinking. Was there a way to avoid being wiped out if you were long eurchf with a stop loss? I guess my question is: are there any brokers that would have guaranteed the execution of a stop loss even in this case, even with a huge gap? Because if not, then trading FX is just crazy. Thanks
One broker that helped was Oanda. They didn't "guarantee" the stop per se, but they did "forgive" any negative balance UP TO your stop. No broker will guarantee any stop precisely because of these types of events. No on can predict the future and this is why we must be careful.

Step you can take:

  1. Use a broker like Oanda
  2. Trade with lower leverage - don't use ALL your leverage
  3. Keep only enough money in your trading account to properly margin your account, for the leverage you will use. Take all other funds dedicated to trading and place them in a "secure" interest bearing account. That way if you are "wiped out" by a black swan even you will only lose your margin and not your entire inventory.

Welcome to the "real world" of trading

  • #12
  • Jan 24, 2015 8:28am Jan 24, 2015 8:28am
Dont worry too much. You do NOT need to create a mechanism to avoid this happening, for example grid hedging. Gaps this size only occur to pegged currencies / fixed price floors getting removed. Gaps this size does not happen, ever, to regular majors. Orders are all over the place to avoid this happening.

Keep in mind there were little to non barrier options / option expiries below 1.20 on /chf. Unless there was a sadomasochist organisation... ; EQUILIBRIUM distorted to the maximum ; no market for a few minutes.
  • #13
  • Jan 24, 2015 8:40am Jan 24, 2015 8:40am
Quoting gspajon
{quote} Take all other funds dedicated to trading and place them in a "secure" interest bearing account. That way if you are "wiped out" by a black swan even you will only lose your margin and not your entire inventory.
Well it seems that in most cases the guys who got wiped out were liable for all the losses, even those beyond what they had in their account. So even if the broken can't take it directly from the bank account connected to the trading account, he will sue you for all the rest. (which is what I think is happening at FXCM)

What's really crazy is that I can't imagine that brokers like FXCM pass any real order following the orders of their retail customers, so no loss was actually incurred, yet they will take everything from them. (I can't begin to understand why anyone would stay with a company like FXCM after this)
These "black swan" events are unlikely but they do happen, so if I can find brokers who will guarantee stops (and meet my other criteria) I will definitely go there.
  • #14
  • Edited 9:10am Jan 24, 2015 8:57am | Edited 9:10am
Here are some things I recommend to avoid risks like the EURCHF debacle:
1) Put in a savings account $10,000 for every lot (100,000 units) you trade. This is based on my calculation of the loss I would have incurred being on the wrong side of the EURCHF with 1 lot.
2) Choose a broker that is well-capitalized and, better yet, has forgiven negative balances. As someone else suggested, this EURCHF event was a very useful stress test to see which brokers are worthy of our business.
3) Don't trade pairs whose central banks are known for surprise interventions. This means no trades in any CHF pair--ever. This also means trading the JPY pairs with caution when the Japanese central bank starts talking about key levels. And for heaven's sake, don't trade any pair that's in the news for collapsing or spiking (e.g., the ruble). There's plenty of money to be made in pairs that are not drama queens. The EUR, GBP, AUD, and USD pairs are "safer."
4) Make it a habit, every day, to read commentaries by people who are sharp, so that you're aware of which central banks are making noises about interventions. Do an internet search, and you'll see who had smart commentary on the CHF, with warnings given months in advance. I like Kathy Lien, for instance.
5) Even if you trade "safer" pairs, there is always the possibility of an assassination or other surprise event not orchestrated by a central bank. ALWAYS have a stop in place (but recognize that a stop is no guarantee). Consider shorter-term trades and being flat (holding nothing but your base currency) at the end of every day.
6) I have never seen a central bank intervene during the North American session (roughly 8 a.m. EST to 5 p.m.) If you want to be "safe" from this particular risk, trade only that session.
  • #15
  • Jan 24, 2015 9:02am Jan 24, 2015 9:02am
Quoting alt11
{quote} so if I can find brokers who will guarantee stops (and meet my other criteria) I will definitely go there.
IG and ETX capital both provide guaranteed stops. With ETX it will cost you an additional £10 extra per trade. IG will add an additional spread.
  • #16
  • Jan 24, 2015 10:02am Jan 24, 2015 10:02am
Quoting rjm101
{quote} IG and ETX capital both provide guaranteed stops. With ETX it will cost you an additional £10 extra per trade. IG will add an additional spread.
This has to be the most ridiculous idea i have ever heard. The whole point is that nothing is guaranteed when one looks at the swiss move. A whole lot of ECN brokers did not get quotes from banks that time. How the hell are they going to guarantee stops, its a power at play above them.

Only market markers can, because, well, they are the market and generate their own quotes.

Edit: I guess you mean that they will provide compensation / negative balance protection (insurance buying) for that amount, instead of a guaranteed stop, technically speaking. It is a bit missleading.
  • #17
  • Jan 24, 2015 10:04am Jan 24, 2015 10:04am
Quoting alt11
Well it seems that in most cases the guys who got wiped out were liable for all the losses, even those beyond what they had in their account. So even if the broken can't take it directly from the bank account connected to the trading account, he will sue you for all the rest. (which is what I think is happening at FXCM)...
They can try to sue of course, but that is the entire idea of this kind of account. If you lose more than your account is worth they automatically close the trade and you are done. It is a "margin" call, in which you must replace the margin or lose the account. It is NOT stock or commodities trading. Your account is closed and that's it.

Quoting alt11
What's really crazy is that I can't imagine that brokers like FXCM pass any real order following the orders of their retail customers, so no loss was actually incurred, yet they will take everything from them. (I can't begin to understand why anyone would stay with a company like FXCM after this) These "black swan" events are unlikely but they do happen, so if I can find brokers who will guarantee stops (and meet my other criteria) I will definitely go there.
This is the very truth of retail FX trading. All...ALL...retail forex brokers are "bucket shops". They are the counter party to your trade. Your business never sees the light of the actual market, because its too small. So what is owed is owed to the broker, (who by the way has the advantage of seeing where your stop is and can manipulate-to a certain extent, via the spread-the price you see on your screen. They will always find a way of taking your money. They will bluster and threaten, but in the end if you have only the money in their account, that's all they get.

I highly recommend for people like us (retail traders), that we stay away from retail FX brokers. The recent round of regulations has made it virtually impossible to come out ahead. The US, anyway, is funneling everyone into the futures markets. But at least that market is more transparent. If I place an order even it is a single mini-lot, I can see it go up on the exchange and get filled. That will NEVER happen in the forex market at this level...for many reasons...the greatest of which the forex market is decentralized. You are only dealing with banks...banks that don't lose...ever. And with greater leverage, comes greater risk, and greater responsibility to act prudently.

I sincerely believe we are going to start seeing increasing margin requirements, and even more regulations to "protect" the retail person, that will ultimately drive him/her out of the business. Take heed and start planing accordingly. If you want to continue trading...capitalize sufficiently to sustain this type of event, and/or move to a more transparent market.
  • #18
  • Jan 24, 2015 10:23am Jan 24, 2015 10:23am
Quoting Robertk
{quote} Edit: I guess you mean that they will provide compensation / negative balance protection (insurance buying) for that amount, instead of a guaranteed stop, technically speaking. It is a bit missleading.
Yes, I agree it can be misleading. Reading ETX legal docs you take any loss up to the amount you set your stop loss and the rest of the difference is paid through insurance. I've only mentioned it as a guaranteed stop because that’s what IG and ETX both refer it as.
  • #19
  • Jan 24, 2015 10:34am Jan 24, 2015 10:34am
Quoting Robertk
{quote} How the hell are they going to guarantee stops
Because when you as a retail trader pass an order, it is just recorded in the platform, there is no real transaction. So the whole liquidity argument is just a joke.
Which is why some brokers decided to "forgive" negative balances after the SNB fiasco.
If real money had been involved would they just "forgive" it?
I don't think so
  • #20
  • Jan 24, 2015 11:33am Jan 24, 2015 11:33am
Quoting alt11
{quote} Because when you as a retail trader pass an order, it is just recorded in the platform there is no real transaction. So the whole liquidity argument is just a joke.
Its not a joke, for a smaller brokerage there's PoP, http://www.investopedia.com/terms/p/primeofprime.asp, example ; http://www.ebs.com/solutions/prime-b...customers.aspx
Quoting alt11
Which is why some brokers decided to "forgive" negative balances after the SNB fiasco.If real money had been involved would they just "forgive" it? I don't think so
Because "that" broker is either "B Book" (Oanda, etc) or simply chasing their clients debts is not worth to ruining their 'good' names. Other brokers may use it for marketing purpose.
I see it all in between ...
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