this is bollocks: The pair did not drop down 30 or 40 percent. There were tons of fills done above parity. Sure, even a 10%-20% hit would badly hurt but please do not portray it as fact that nobody could get filled without suffering a 30% move in the pair.
sure, if you intend to trade at 10:1 right after starting your algo trading venture then you surely deserve to go bust. And secondly, you should not be in this arena if you have no clue how things work. For your reference, most reasonable and above all experienced investors and traders already stayed away for weeks (if not months) from all swiss frank crosses. If you honestly think you just turn on your machine and thats all you need to know then you may be in for a rude awakening. I already block my algorithmic framework from entering into any swiss frank related positions for months. To Trade a 100k position you should at least have 30-50k in base currency equivalent notional in your account to make it beyond even the first year. Just 2 cents from someone who has played this game now for over 13 years.
hardly any ever, at least in G8 currency pairs. Any artificial pegs, interventions are usually red flags for any trader to be conscious about the risks involved.
LuisHK, I know we exchanged thoughts on a different threads but I like to repeat, what you describe is not a liquidity problem but clearly describes a technology risk (whether by accident or intended). LMAX as well as a number other professional grade ECNs filled orders without hiccup. I second your described experience with IB. I love IB for various reasons but experienced the same every now and then.
HKD/USD being the rare exception? I think what's slightly unusual about this occasion is that the SNB were trying to keep their currency low, so I think many assumed that you can always defend that kind of peg. Typically the currency in question is under selling pressure and the central bank is losing reserves trying to keep it steady against a strong currency. If the SNB really wanted to weaken their currency they could be irresponsible and just print more and more money to create some inflation, but I guess they figured the long term ramifications of doing that were too dangerous. Taken to an extreme, if you fixed against Zimbabwe's currency, say, that would be impossible to maintain without being reckless. So maybe the problem for the SNB was the wrong choice of currency to peg. They never signed up to the Eurozone project, but fixing CHF against EUR in the long term amounts to pretty much the same thing. Maybe the impending Greek election and possible Greek exit had an impact on their thinking? Blood on their nose now, and a dent in their reputation, but in the long term probably the right move to abandon it. As soon as one leaves the Eurozone (and they will), others will follow, and who wants to be pegged to EUR in that situation?
On the subject of pegs, the Danish Krone is still pegged to the Euro. It's never been viewed as a safe haven currency, but if the Euro keeps going down then there might be divergence that has to be dealt with.
I don't know that much about it. First time it has ever happened to me. Maybe someone with more knowledge can explain it, but as I understand it all the cap does is modify your stop to a stop limit, and ib decides the limit. at the time, eur/chf was moving about 100 pips per minute, both down and up I was short with trailing stops, and selling with stops so before I could click continue or cancel I got filled and this happened about 3 or 4 times. At that point eur/chf was down about 17% and moving up to about 11% and all over the place in between. The 2 hour chart actually looks pretty mild, but that is because it is all relative. Everything was happening so fast, I don't know it the caps were on my buys or sells or both.
Thanks Volpunter and Mav for your thoughts. I guess I have a lot more work to do on the fundamental side-ex> taking out pairs that have pegs which are black swan candidates.Volpunter, when you suggested that 100k size should have a base currency account of 50k. You essentially are suggesting a newbie should start with a 2:1 margin ? Other than fx crosses that have pegs, are there any other reasons a pair should be avoided? My algo has 2 systems-a fade and a trend system and thru demo trading ,I've already stopped fading ALL non-asian Fx crosses-too much system drawdown as well as avoiding 1-2am and 8-9am EST trades due to news tending to be released during those times. Any other suggestions? Thanks.
The only thing I can think of is the Chinese yuan, I believe has a peg with the U.S dollar. This currency seems to correlate highly with the Australian dollar. Whenever there is an announcement out of China, AUD.USD seems to bounce around. So I'm thinking that trading AUD.USD might be a problem if the yuan peg is removed. That's an issue for me because I trade this pair.