here, so I’ve asked him to chime in on the issue, and discuss the impact to his trades and how he manages risk to avoid events like this. We’ll have
that article below.
inversion that occurred around the 7/16 top):
dollar. If those reverse lower here, the model will invert again.
Swiss Franc Volatility
5:00am EST. Markets such as the USD/CHF (Dollar vs. Swiss Franc) plunged lower and erased nearly 8 months of upside price action in less than 30 minutes.
shortly after, stating that the Swiss National Bank had, in an ‘emergency meeting’, removed a three-year minimum exchange-rate floor on the
Swiss Franc against the Euro. What this means is that previously there was a price level that would be defended at 1.20 on the EUR/CHF (Euro vs. Swiss Franc)
market. Once this barrier was removed, the market plunged in a free-for-all for almost thirty minutes, violating this level and far
‘pair’, meaning it shows the valuation of one currency against another. Along with the EUR/CHF, other pairs had enormous moves lower as
GBP/CHF – Pound vs. Franc
AUD/CHF – Aussie vs. Franc
NZD/CHF – New Zealand Dollar vs. Franc
increase in the value of the Swiss Franc against other currencies, including the U.S. dollar. This is represented by the spike higher in the actual Swiss Franc
there were discussions of individuals having their accounts wiped out, funds going bankrupt, and certain brokers becoming insolvent because they were unable to
maintain an opposing position against their clients for such a drastic move.
perspective. And while many, including financial media sources, are zeroing in on this event as a reason that the market is no longer
‘fair’, the reality is:
traders are losing money all the time, regardless of what the market is doing or which market they are
reasoning, we can then go on to tackle other Forex related issues that have been brought up recently:
work every day? There is danger involved in driving, but that danger is very different between a responsible driver and someone driving erratically at 40 mph
above the speed limit.
positions are entered using a pure margin account. Instead of buying or selling a position outright, the capital in a Forex account is used as margin for
holding a much larger, leveraged position. As a result of this, there are two ways I manage my risk on my Forex trades:
Just like any other market, I am only
risking a specific amount on each trade based on my overall capital. If I am risking $500.00 per trade, then I set my stop level and adjust my position size so
that each of my Forex positions only risk $500.00 if the position hits my stop level.
I NEVER put more than what is needed
for margin in a Forex account. For example, let’s say I’m placing trades based on a total capital of $200,000.00.Since this is a margin
account, I may only need to put $5,000.00 in the Forex account to cover the margin I need to hold my positions. That way, if something very drastic DOES occur
and threatens the broker’s solvency, I am not risking my entire capital, only a small portion of it.
margin accounts like Forex and futures. Unfortunately, many who were wiped out on January 15th
were violating the above two rules. They had their ENTIRE capital invested/held in a Forex account, and many were holding naked positions with no stop order to
cut their losses.
market are asking for trouble, and are almost guaranteed to suffer large losses at some point. Without an exit strategy, an individual can end up losing all or
most of their capital in the stock market just as easily as in Forex.
trading leveraged positions allows you to risk far less account capital, while holding the same position size as a stock.
risk $500 in a high-priced stock position may require you to hold a $50,000.00 (per trade) position outright, whereas in Forex you can risk $500.00 on multiple
positions with only $5,000.00 in the margin/leveraged account.
with a $50,000.00 position on a stock that suddenly plunged or gapped lower? Or would you rather risk $500 on a Forex trade with only $5,000.00 at risk total
if you were trading the Swiss Franc and it suddenly plunged lower?
sudden, rare, drastic moves in a market that would affect the ability of the market to liquidate your position with your stop order.
during a crash?
Later on the next day after the January 15th plunge, both Oanda and Thinkorswim (two of the
brokers that I recommend in my services) released statements saying that they would honor all of their clients’ stop orders regardless of the loss
incurred by the company. These firms are large enough to absorb the loss of such a drastic move.
forums verified that they did in fact get their positions liquidated near their stop level, even though there was some slippage
for all brokers. There were others that lacked the capital to take the other side of their clients’ trades during the plunge, and left their clients
in limbo over the U.S. holiday weekend as to the losses incurred in their accounts, and whether any of the stop orders were going to be
Forex markets are open 24 hours a day, five days a week. Additionally, because the Forex markets are so large, the weekend gaps are minimal and often
that gaps (sometimes significantly) every night between the stock market close in the afternoon and the stock market open the next
You open a Forex position, and place a stop order that risks $500.00. Later that night
while you are sleeping, the market runs against you. Since the market is open 24 hours, you will have your stop order liquidated exactly where you wanted, and
only lose the $500.00 you risked.
You open a stock position at $145.00 per share, and set your stop order at $140.00,
risking $500.00 based on your position size. Overnight, a large news event (or quarterly report) drastically affects the value of your stock. You wake up to
find the stock trading at $95.00 per share on the next morning. Guess what? Your stop order is now executed at $95.00 per share, NOT $140.00, causing a huge
loss far beyond what you had anticipated.
who use it responsibly:
While less famous than the stock market, Forex is the largest market on the planet with
an estimate 4 trillion dollars a day traded, compared to 85 billion when you combine all the world’s stock markets
Open 24 hours, five day a week – You can place or adjust trades anytime day or
Enormous liquidity on both sides of the market – Instant fills on small or
extremely large position sizes whether you are going long or short in the market
Most brokers do not charge commissions – You can open up a very small account,
and not have it get eaten up by commissions as you would in the stock market
Great flexibility on position sizes – Just as an example, you can open a $100
account and risk $5 per trade, or open a $100,000.00 account and risk $5000 per trade on the same setups
No price gaps during the week, and only minimal price gaps over the
There are NO ‘pattern day-trader’ rules. Regardless of your account
size, you can open or close as many positions as you want, as often as you want, with no limit.
open positions. This is one of the large benefits of trading a strategy that involves quick and precise entries and exits. The odds of having a position open,
in the effected market, on the wrong side, at the exact wrong time during a massive move like this are VERY low when swing-trading my
first time a massive move like this has occurred, although it is very rare. Many of those complaining about losing money during these events are still
complaining about losing money even during quiet markets because they have yet to learn how to manage risk, manage their emotions, and develop a consistent
stocks? Remember that large market events such as the flash crash of 2010 happen in the stock market as well. There are very few people who make any money in
the stock market during their first couple years of trading. In fact, a large number new traders will wipe out their first account within the first six months
regardless of what they trade. Trading is not an easy profession, and often it is people’s own psychology in regard to money that is their biggest
obstacle, not the market itself.
your risk, and when the market has a major event such as the one on January 15th, have the
patience to step aside and wait for conditions to return to normal.
market events or would like to find out more about my Forex service, please feel free to contact me or visit our website
not only will you get precise daily trading advice in forex, you will also get the following:
- Ian Mitchells Guide to Getting Started in Forex – learn how to set up an account at the best brokers
- The Forex Trader user manual – learn the system and how to best follow his daily trading advice
- Ian’s Weekly Successful Trader Article – learn how a pro views the market and various trading concepts
- There are no commissions from our select brokers so you can enter and follow along with very little capital.
- There is tremendous liquidity to get in and out of trades as the Forex market is much bigger than the stock market.
- You can trade 24/7 – it fits YOUR schedule.
- And Ian will show you how his system avoids events like what happened with the Swiss Franc.
are reported in his updates.
when signing up.
Friend link below. Thanks!