I learned my lesson the hard way. Keep yourself spread. Never have more than x amount exposed to any one currency. And that is why forex is such a good vehicle for the small trader.
If the EU is not afraid of Euro going down, why should Denmark and they are one of the richest country in Europe ? The reason CHF is pegged and unpegged, and will be pegged again in the future is more to do with the profit that can be made from the process. Denmark is not in the same situation because no one is using their currency to speculate. If they peg or unpeg, nobody will care.
Thanks jaygould. I don't mind the bouncing around, in fact I need it for the non fade system. The one I am trying to avoid is when the fair value is so away from current value for whatever reason that the price discovery process of the markets are rendered irrelevant..at least till someone says it is.
No exceptions. Most professionals expect the HK peg to end badly as well. In fact, I can't remember if it was Bill Ackman or Kyle Bass, but one of them has a massive put position betting against the USD/HK peg. He said the puts were pennies and long term but he he believes the position will pay off 100 fold. The Swiss "don't" want inflation. They just didn't want their currency to strengthen enough to keep Euro visitors out. The problem came about after the credit crisis when the Swiss attracted the flight to quality money. The Swiss got hit hard obviously during the banking crisis and their currency was making it difficult to sustain their tourist economy. So here is the issue on reserves. The Swiss were buying Euros and increasing foreign reserves but at the expensive of domestic credit. If foreign reserves goes up, domestic credit has to decrease if they want to maintain a fixed money supply. If they don't, their money supply will increase and cause inflation. Inflation is what they did NOT want. Part of this emergency move was to fend of the QE expected out of the Eurozone next week. The Swiss would have imported all the inflation from the EU via the QE from the ECB. So they let their currency strengthen ahead of that to block it off.
What do people mean when they talk of stops being "honored". Having a stop does no good if the other side of the trade is not there. Surely, no one expects the broker to step up and stand against the tsunami!!
Good point. I suspect they are thinking in terms of a market where market makers are obliged to make a market, no matter how hideous their terms. A better example of this Black Swan event would be the crisis of 2008, where nobody took the other side of the CDO and CMO market, which was described as liquidity drying up. I'd say in this CHF incident, liquidity dried up.
The event should not have wiped anyone out if they using sound money and risk managment. If you risk 100 pips as 1% of your account. Then a 1000 pips slippage on your stop = 10% of account gone. Yeah a 10% or 20% hit is bad, but wont put you out of business if it only happens very rarely.
I guess that leaves out CHF futures with anything less than a 125k$ account, right? Might as well be 1:1 leverage. IMO the "problem" here is that markets and risk control don't really work when true black swan events happen. Liquidity disappearing because no one will take the other side of the trade at anything less than 1000 ticks away provides zero opportunity to get out without a serious ass whooping. The only possible risk control would have been protective 6S CHF options and if you're buying those you probably already have a hunch and wouldn't be on the wrong side of the trade in the first place. I wonder how things would have panned out if they announced this unpeg during a period of higher overall volume.
Lets say I want protect to myself from anything past a 50 pip move in a pair. For instance EURUSD is at around 1.1563 And say I wanted to buy 4 Lots 400K worth, but make sure I took no more losses past 1.1513. (This isn't an actual trade I'm going to do just an example) What vehicle should I look into ? I'm sure its a put option somewhere but I'm trying to get a handle on exactly which one and the total cost of protecting my 4 lots. I'm doing my research too, but just wondering how someone else would solve this problem.