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

  • #21
  • Jan 24, 2015 9:50am Jan 24, 2015 9:50am
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. 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
Depends on what kind of broker you have.

This explains it quite well imo
http://www.forexfactory.com/showthre...54#post8003454
  • #22
  • Jan 24, 2015 9:53am Jan 24, 2015 9:53am
Quoting Thx
{quote} 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 {quote} 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.
But wouldn't all retail traders at FXCM be on B book?
  • #23
  • Jan 24, 2015 9:56am Jan 24, 2015 9:56am
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
Simple answer is money management.
Build your account up slowly. When you start seeing big money in your account dont think you can start increasing lotsize to increase profits prematurely. Its better to reduce your risk as equity goes up until you reach a point where you cant lose. Then increase your lotsize.
Make a trading plan and stick with it. Any plan should have all this worked out already.
I read that Forex should not be treated like a business but I disagree.
Treat it like a business and you will have more chance of success.
Make a robust plan and stick with it. Dont let greed let stupidity in the door.
  • #24
  • Jan 24, 2015 10:02am Jan 24, 2015 10:02am
Thanks for the advice
I'm just thinking that it's hard to have a plan if you cannot precisely calculate your risk. And if it's possible that stop loss order aren't executed then it casts a doubt on the validity of the whole thing.
I'm actually considering trading currency futures now. Have to learn more about it.
  • #25
  • Jan 24, 2015 10:11am Jan 24, 2015 10:11am
Quoting alt11
Thanks for the advice I'm just thinking that it's hard to have a plan if you cannot precisely calculate your risk. And if it's possible that stop loss order aren't executed then it casts a doubt on the validity of the whole thing. I'm actually considering trading currency futures now. Have to learn more about it.
You cannot precisely calculate your risk in anything.
The best you can do is prepare yourself for the worst case scenario.
Black thursday is the NEW benchmark so prepare yourself for that X2 and you should be relatively safe.
But even when you get to that point keep reducing your risk and there will come a point where loosing will become impossible.
  • #26
  • Jan 24, 2015 10:30am Jan 24, 2015 10:30am
Here is a simple equation:

0.01 lot X 1000 pips = $100
0.01 lot X 10000 pips = $1000

So for every $1000 dollars of equity if you trade with a 0.01 lot size you account can suffer a move of up to 10,000 pips before being wiped out.
Some might say these figures dont look attractive and its a waste of time trading for those returns.
If thats the case trading is not for you as this is the reality.
There is no need to loose an account, accounts are lost through failing to grasp the simple fact ive outlined above.
  • #27
  • Jan 24, 2015 1:45pm Jan 24, 2015 1:45pm
Quoting jizzyjay
Here is a simple equation: 0.01 lot X 1000 pips = $100 0.01 lot X 10000 pips = $1000 So for every $1000 dollars of equity if you trade with a 0.01 lot size you account can suffer a move of up to 10,000 pips before being wiped out. Some might say these figures dont look attractive and its a waste of time trading for those returns. If thats the case trading is not for you as this is the reality. There is no need to loose an account, accounts are lost through failing to grasp the simple fact ive outlined above.
That's not really the issue though. The point is that recent events have shown some us who are newer to Forex that it is possible to do everything in our power to manage risk, and still end up with not only our trading capital wiped out (regardless of stop losses, which only work to manage risk if they get filled), but could end up owing MORE than is in our trading account. In theory, it would be possible to run up limitless losses...and who is willing to risk that?

My take on this is that it is sensible to trade only if (1) the trader uses a broker who offers guaranteed stop losses (for additional spread, like IG), (2) the trader uses a broker who is legally bound not to pursue negative balances (the fact that they have 'forgiven' a negative balance in the past doesn't mean they'll do it again in the future), or (3) operates in another way to avoid personal liability for negative balances, for example trading as a limited company here in the UK (I'd be interested in hearing from anyone in the UK who trades this way).
  • #28
  • Jan 25, 2015 6:41pm Jan 25, 2015 6:41pm
As someone who’s only recently starting to get into forex I've been scouring the web for a broker that provides negative balance protection, however if any brokers like FXCM are to go by then as soon as the company runs into trouble they will find some obscure clause in the contract in order to chase you for the negative balance. Sure you could go for a broker like Oanda that forgave negative balances due to this particular event but there’s nothing in the contract claiming they will do this for a similar event in the future whether it be a freak event or simply because of losses you've made on multiple trades. Alternatively, you could look for brokers that provide guaranteed stops. However, this is only suitable for those not making many trades as it comes with an additional cost. This leads me to say that if you want some sort of reassurance that you won't get wiped out in a matter of minutes don't use leverage or at least keep it minimal. Hedge funds typically use 4-8:1. If you don't have the capital to trade then don't trade. If a 14% shift is enough to wipe out your capital then your leverage is too high. It all comes down to risk management. The leverage ratios provided by most retail brokerages is simply too high.
  • #29
  • Jan 25, 2015 10:51pm Jan 25, 2015 10:51pm
Quoting philtre71
{quote} That's not really the issue though. The point is that recent events have shown some us who are newer to Forex that it is possible to do everything in our power to manage risk, and still end up with not only our trading capital wiped out (regardless of stop losses, which only work to manage risk if they get filled), but could end up owing MORE than is in our trading account. In theory, it would be possible to run up limitless losses...and who is willing to risk that? My take on this is that it is sensible to trade only if (1) the trader uses...
Is it not?
Ok. So you would rather put the security of your funds in someone else's hands by over leveraging a trade and relying on a stop loss?
Good luck!
  • #30
  • Jan 25, 2015 10:53pm Jan 25, 2015 10:53pm
There is one simple and effective way to avoid being wiped out in events such as the snb of few weeks ago.

The way is:
Do not trade capped currencies!

If everyday you play with fire, you are eventually going to get burn.

Trade only "free-floating" markets, you would be pretty safe.
  • #31
  • Jan 25, 2015 10:57pm Jan 25, 2015 10:57pm
Quoting spaceduck
There is one simple and effective way to avoid being wiped out in events such as the snb of few weeks ago. The way is: Do not trade capped currencies! If everyday you play with fire, you are eventually going to get burn. Trade only "free-floating" markets, you would be pretty safe.
This^^
  • #32
  • Jan 26, 2015 6:43am Jan 26, 2015 6:43am
But isn't the euro just a group of pegged currencies? What if (crazy idea) the Greeks say ok we're out? Or if Germany does?
Sounds crazy but aren't black swans beginning to be as common as ducks these days?
  • #33
  • Jan 26, 2015 10:31am Jan 26, 2015 10:31am
Quoting jizzyjay
{quote} Is it not? Ok. So you would rather put the security of your funds in someone else's hands by over leveraging a trade and relying on a stop loss? Good luck!
I think I understand what you're saying (sorry I didn't get it first time). You're saying that traders could set their lot size (in your example, 0.01) such that it would require an 'impossible' move in terms of pips to wipe them out? That's making sense to me, if I've caught your meaning...?

So if I was trading with £100,000, I could look at the pair I'm thinking of trading and work out what maximum adverse effect could be (the price going to 0? could a currency pair ever go negative??), work that out in pips, then ensure my lot size is small enough to cope with even that 'impossible' drop?
  • #34
  • Jan 26, 2015 2:52pm Jan 26, 2015 2:52pm
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

Very easy don't trade around news give 30 min before and after and on any day when it's news like any kind of rate decision just don't trade that day. Thats as simple as you can get.
  • #35
  • Jan 26, 2015 11:42pm Jan 26, 2015 11:42pm
It's not about news, time for entry and exit, volume of position, etc. It is all about liquidity. Trading pairs with low liquidity you are risking to come across the moment, when there will be only bulls and bears. Pairs with high liquidity will ensure your order will be filled at tiniest spread and get lowest slippage (if not get at all). EUR/USD and commodities are best assets to trade, as liquidity there won't exhaust anyway.
However, sometimes it is wise to back off from your own principles and take risk. During recent ruble collapse I give a try to USD/RUB when Hotforex LP were still providing tolerable but going to faint liquidity of $. Despite of risks to stumble upon a liquidity plight, the profits were worth to jump in.
  • #36
  • Jan 27, 2015 12:24am Jan 27, 2015 12:24am
Quoting philtre71
{quote} I think I understand what you're saying (sorry I didn't get it first time). You're saying that traders could set their lot size (in your example, 0.01) such that it would require an 'impossible' move in terms of pips to wipe them out? That's making sense to me, if I've caught your meaning...? So if I was trading with £100,000, I could look at the pair I'm thinking of trading and work out what maximum adverse effect could be (the price going to 0? could a currency pair ever go negative??), work that out in pips, then ensure my lot size is...
Exactly.
You dont have to go to the extreme you stated but if you did all the better.
If you can cover a move similar to the CHF move on black thursday you should be pretty safe in most currency pairs. Use that event as your benchmark for preparing for the worst.
If you have a small account and cannot do this initially then at least understanding the principle will ensure that you are constantly working towards that target as your equity rises.
Always keep the safety of your equity in your own hands.
  • #37
  • Jan 27, 2015 12:30am Jan 27, 2015 12:30am
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

Don't worry about this event, it's so called black swan. Moreover, don't trade any pairs where central bank holds rate of exchange artificially and don't enter market before important news releases or monetary policy statements and conferences. Always use stop loss, normally market is liquid enough to execute your SL with little slippage, of course if you use reliable ECN model broker that doesn't reject trades, it's very important! Since I have been trading forex at reliable brokers I haven't had slippage bigger than 2 pips (I use tight SL, about 10 pips and avoid all red news releases).

Happy trading!
  • #38
  • Jan 27, 2015 12:44am Jan 27, 2015 12:44am
Quoting jizzyjay
{quote} Exactly. You dont have to go to the extreme you stated but if you did all the better. If you can cover a move similar to the CHF move on black thursday you should be pretty safe in most currency pairs. Use that event as your benchmark for preparing for the worst. If you have a small account and cannot do this initially then at least understanding the principle will ensure that you are constantly working towards that target as your equity rises. Always keep the safety of your equity in your own hands.
Thanks...that's really helped my thinking around this issue. Much appreciated.
  • #39
  • Jan 27, 2015 3:12am Jan 27, 2015 3:12am
Quoting spaceduck
There is one simple and effective way to avoid being wiped out in events such as the snb of few weeks ago. The way is: Do not trade capped currencies! If everyday you play with fire, you are eventually going to get burn. Trade only "free-floating" markets, you would be pretty safe.
Good day Spaceduck.

Would you be so kind to tell which currencies are capped?

Much appreciated.
  • #40
  • Jan 27, 2015 5:22am Jan 27, 2015 5:22am
Quoting flaffie
{quote} Good day Spaceduck. Would you be so kind to tell which currencies are capped? Much appreciated.

Now, you can trade all most popular currencies: USD, EUR, GBP, AUD, NZD, JPY, CAD and even CHF, but CHF is very volatile now, so it's better to stay away from it for a few weeks.
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